In 2010, following a joint claim submitted by six local film distributors, the Viet Nam Competition Administration Department (VCAD) initiated an investigation against Megastar, a major foreign-invested enterprise specialising in film importation and distribution, for alleged abuse of its market position in the distribution of imported films.

If Megastar is found to be in violation of the law, it would face a maximum sanction of 10 per cent of it gross annual revenue, among other possible remedies.

This investigation marks the first time since the enactment of the the Law on Competition that authorities have investigated the operations of a foreign-invested enterprise. However, this is not the first investigation carried out under the law. In 2009, after four years of maintaining a low profile, the Viet Nam Competition Council imposed a fine of VND3.7 billion (US$180,000) on the Viet Nam Air Petrol Co, a State-owned monopoly supplying aircraft fuel in Viet Nam, for abusing its market position by refusing to supply fuel to a domestic carrier.

A year later, the Council imposed a fine of VND1.9 billion ($90,000) on 19 automobile insurers which had entered into a price-fixing agreement in late 2008. These decisions reaffirm the commitment of Vietnamese competition agencies to rigorous punishment of violations of the Law on Competition.

The mounting level of enforcement should serve as a warning to foreign-invested enterprises to pay extra attention to compliance. Having a compliance programme in place not only mitigates risk but also enhances business efficiency and protects investors from anti-competitive practices.

The Law on Competition applies to all types of business, including sole proprietorships, companies, and trade associations operating in Viet Nam, regardless of the ownership type. Its scope of application includes so-called Practices in Restraint of Competition (PRC), which include agreements in restraint of competition, abuse of dominant market or monopolistic positions and economic concentration, and Unfair Competition Practices (UCP), which include other anti-competitive conduct as stipulated by law.

Abusive practices are enumerated in Articles 13 and 14 law, which prohibit various techniques by entities with a dominant market position to seek supra-competitive profit by imposing oppressive or unfair conditions on trading partners. These can include price-fixing or setting a minimum price, market restrictions, and impeding research and development, as well as predatory pricing and agreements in restraint of trade (market foreclosure).

To determine whether an enterprise holds a dominant position, investors should take into account: (i) whether the enterprise’s market share is 30 per cent or more of the relevant market, or (ii) whether the enterprise is capable of substantially restraining competition (i.e., has significant market power). The Megastar case raised considerable debate primarily due to ambiguity surrounding the definition of relevant market, as Megastar is involved in both film importation and distribution and cinema operations.

The law maintains a stricter attitude towards PRC in terms of penalties and procedures. The applicable sanctions for PRC are calculated based on a percentage of the total turnover of the enterprise found to be in breach for the financial year preceding the year in which the breach was committed. Meanwhile, fines applied to UCP range from $250-$5,000. Given the severe sanctions applicable to anti-competitive practices, foreign investors must clearly understand their safe harbors as well as grey areas in the law.

Since a 30-per-cent threshold is used to define a dominant market position for the purposes of the law, this threshold creates a legal “safe harbor” for certain types of agreements and economic concentrations. Anti-competitive agreements that are often banned in many developed jurisdictions, such as price-fixing, market or customer allocation, and production or sales restrictions, are exempted from the reach of Vietnamese with regard to businesses with a limited market share. From the perspective of the law’s drafters, enterprises with a combined market share of less than 30 per cent possess minimal capacity to harm the competitive climate or consumers. A similar rationale was applied to economic concentration.

For parties meeting the 30-per-cent combined market-share threshold, application of the law becomes less cut-and-dry. If parties an agreement would reduce costs and benefit consumers, they can apply for an individual exemption for a definite period. An individual exemption may even be granted for an economic concentration between two enterprises with a combined market share in excess of 50 per cent of the relevant market, if the concentration brings about economic efficiency or the enterprise remains a small- or medium-sized enterprises after the economic concentration.

In cases in which the combined market share of participants in an economic concentration is 30-50 per cent, the parties may either notify the competition authority or file for an individual exemption. Due to issues involved in determining the relevant market and market share, investors are advised to consult with competition agencies before submitting a notification or application for exemption.

Unfair competition practices

The VCAD was increasingly active between 2006 and 2009, initiating 45 investigations and issuing 25 decisions on UCP violations. This can partially be explained by the nature of the Vietnamese economy, as common violations of UCP, such as IP infringement and business coercion, are more common in an emerging economy.

Recently, a domestic enterprise attempted to defame on the internet and in national media a leading distributor of kitchen supply products after the termination of their business relationship. After a lengthy attempt to settle the case, the foreign distributor was ultimately able to halt the defamation through lodging a UCP complaint with the VCAD.

It takes about six months for the VCAD to complete a UCP investigation, compared to a year or more for a PRC investigation. During the course of proceedings, claimants may request interim relief. However, private damages are not available and injured parties must file suit in a civil court for damages.

Source: VNS