Competition in the market is based on the independence of each undertaking in determining its prices, production volumes, and commercial policies according to market conditions and its own assessment. Accordingly, coordination between competitors concerning prices, market allocation, or bids constitutes one of the most serious forms of restriction of competition.
Competition Protection and Anti-Monopolistic Practices Law No. 3 of 2005 regulates these practices through Article 6, which prohibits certain agreements or contracts between persons competing in the relevant market where they are capable of producing one of the results specified by law.
These practices are commonly referred to as prohibited horizontal agreements or «cartels», because they occur between undertakings operating at the same level of the market and which are, in principle, expected to compete with one another rather than coordinate their commercial conduct.
What Are Prohibited Horizontal Agreements?
A horizontal agreement is an agreement or contract between persons competing in a relevant market, meaning undertakings that are expected to compete in selling or purchasing the same products or providing the same services or close substitutes.
The agreement does not have to take the form of a lengthy commercial contract or a document expressly titled «price-fixing agreement». The facts may reveal coordination or an understanding through correspondence, meetings, communications, or reciprocal conduct, provided that the existence of the agreement or contract required by the provision is established.
However, mere similarity in the market conduct of companies is not sufficient by itself to establish the existence of a prohibited agreement; prices may move in a similar manner because of increases in input costs, changes in exchange rates, or supply and demand conditions. Accordingly, evidence must be sought that allows parallel conduct to be attributed to coordination between competitors rather than independent commercial decisions.
What Agreements Are Prohibited by Article 6?
Article 6 identifies four principal forms of prohibited horizontal agreements:
- Price coordination: Agreeing to increase, decrease, or fix the sale or purchase prices of the products concerned.
- Market allocation: Dividing or allocating markets on the basis of geographical areas, distribution centers, customer types, products, market shares, seasons, or time periods.
- Collusion in tenders and auctions: Coordinating whether to submit or refrain from submitting bids in tenders, auctions, practices, and other supply offers.
- Restricting production or distribution: Limiting production, distribution, or marketing operations, or restricting the availability of products or services in terms of type, volume, or conditions of availability.
These forms represent the core of the statutory prohibition; the law is not limited to direct price manipulation, but extends to allocation of customers or territories, bid rigging, and coordination to restrict supply.
Is an Agreement on a Minimum Price Prohibited?
If competitors agree that none of them will sell below a certain price, the agreement falls, in principle, within the scope of price coordination prohibited by Article 6.
The same applies to an agreement on a uniform discount rate, a maximum discount, or pricing elements that effectively eliminate price competition, where it is established that the competitors agreed upon them rather than each undertaking independently reaching the same decision.
Market and Customer Allocation
Competitors do not need to agree on a uniform price for a violation to occur. The agreement may be even more serious, such as where each competitor undertakes not to enter a geographical area allocated to another, competitors divide certain customer categories among themselves, or each identifies products or periods in which it will exclusively serve the market.
These practices pursue the same result: eliminating the competition that should otherwise exist between the undertakings.
Collusion in Tenders and Auctions
The law prohibits coordination between competitors concerning participation or non-participation in tenders, auctions, practices, and other supply offers.
Collusion may take different forms, such as agreeing in advance which company will submit the lowest price, submitting artificially higher bids to create the appearance of competition, rotating winning bids, or one competitor agreeing not to bid in exchange for another benefit.
In such cases, the issue is not merely that the price may be higher, but that the competitive process itself is corrupted and the procuring entity is deprived of independent and genuine offers.
Must the Agreement Be Implemented for a Violation to Occur?
The wording of Article 6 focuses on the agreement or contract between competitors where it is capable of producing one of the prohibited results listed in the provision.
Accordingly, liability should not be assumed always to depend on the parties successfully implementing the agreement and earning actual profits from it. The agreement itself may be subject to liability where it satisfies the elements of the provision.
However, establishing the existence of the agreement remains an independent matter that must be supported by sufficient evidence; it may not be inferred merely from price increases or similarity without other elements linking the competitors.
Is the Exchange of Sensitive Information Prohibited in Itself?
This issue requires precision. The current wording of Article 6 does not list «exchange of sensitive information» as an independent fifth category of prohibited conduct.
However, exchanging future or non-public information concerning prices, quantities, or customers may be highly relevant in an investigation, particularly where it reveals actual coordination or forms part of an agreement concerning prices, markets, or production.
Accordingly, a distinction must be drawn between information exchange as evidence of or a means of implementing a prohibited agreement and the proposition that every exchange of information between competitors automatically constitutes the offence prescribed by Article 6.
The United Nations peer review of competition policy in Egypt recommended considering more explicit regulation of sensitive information exchange within the framework of horizontal agreements, which confirms that the current provision does not treat it as an independent category with the same degree of clarity as price fixing, market allocation, and bid rigging.
Is Similarity of Prices Sufficient to Prove an Agreement?
No. Similar prices or movement in the same direction may constitute an indicator worthy of examination, but they do not by themselves establish an agreement.
Companies in the market may be affected by common factors such as raw material costs, energy, transportation, or exchange rates, leading them to make similar decisions without coordination.
Accordingly, other evidence becomes important, such as correspondence between pricing officials, unusual meetings, exchange of non-public information, price changes following specific communications, and internal documents indicating that an undertaking knew of competitors’ plans before they were publicly announced.
Defining the Relevant Market
The relevant market plays an important role in the application of competition rules. Its scope is determined by the relevant product or service and the geographical area in which competitive conditions are sufficiently homogeneous.
It is not sufficient to describe two companies as operating in «the same sector» to establish that they are competitors in the same legally relevant market. Their products, customer segments, or geographical areas may differ in a manner that prevents them from being regarded as competitors in relation to the conduct under examination.
Accordingly, identifying the competitive relationship between the parties generally precedes assessment of the agreement itself.
The Role of the Egyptian Competition Authority
The Egyptian Competition Authority examines practices suspected of violating the law and, for this purpose, has powers of investigation, inquiry, evidence gathering, and requesting data and documents. Certain employees of the Authority also have judicial police powers under the law.
Any person may report a violation of the Competition Protection Law to the Authority.
Where a violation is established, the Authority may require the infringing party to adjust its position, remove the violation, or adopt corrective measures. Its Board of Directors may also suspend certain practices where the available evidence indicates a violation of Articles 6, 7, or 8 and continuation of the practice threatens to cause serious harm to competition or consumers that would be difficult to remedy.
Can the Authority Initiate Criminal Proceedings Directly?
The Authority does not conduct criminal proceedings before the court in the manner suggested by the expression «initiate the proceedings directly».
Pursuant to Article 21, except for the specific exception prescribed by law, criminal proceedings may not be initiated or measures taken in respect of acts violating the Competition Protection Law except upon a written request from the Chairman of the Authority’s Board of Directors following approval by a majority of its members.
Once this procedural requirement has been satisfied, the Public Prosecution conducts the criminal proceedings within its jurisdiction, and the Authority’s report or request does not become a prior determination that the offence has been established.
Penalty for Prohibited Horizontal Agreements
Article 22 provides a specific penalty for violation of Article 6.
The penalty is a fine of not less than 2% of the total revenues generated by the product subject to the violation and not exceeding 12% of those revenues during the period of the violation.
If it is not possible to calculate the total revenues referred to above, the fine shall be from EGP 500,000 to EGP 500 million.
The minimum and maximum limits of the fine are also doubled in the event of recidivism, as well as in the event of failure to comply with decisions issued by the Authority pursuant to Article 20, subject to the conditions prescribed by law.
Accordingly, the range of «EGP 30,000 to EGP 500 million» appearing in some writings does not reflect the current penalty regime for violations of Article 6.
Liability of the Legal Person and the Person Exercising Actual Management
Article 25 provides that the person exercising actual management of a legal person is subject to the same penalties prescribed for the violating acts where it is established that they knew of those acts and that their breach of the duties imposed by management contributed to the commission of the offence.
The legal person is also jointly liable for payment of financial penalties and compensation where the violation was committed by one of its employees in its name or for its benefit, subject to the conditions of the provision.
Accordingly, personal liability of a manager does not arise merely by virtue of their position; knowledge and their role in the occurrence of the violation must be established.
Immunity for the First Participant to Report the Cartel
The legislator has established a special regime to encourage participants in horizontal agreements to disclose them.
Article 26 provides that where one of the offences prescribed by Article 6 is committed, criminal proceedings shall not be brought against the first infringing party to report the offence to the Authority and submit the evidence in their possession concerning its commission, where such evidence is capable of revealing the offence and establishing its elements.
This regime is not a general immunity for every person who cooperates after the violation is discovered; the benefit of non-prosecution is reserved for the first reporting party who satisfies the statutory requirements.
As for the remaining infringing parties, the court may reduce the penalty by half for any person whom it considers to have contributed to revealing the elements of the offence or establishing its elements during any stage of inquiry, investigation, or trial.
Settlement Is Different from Immunity
A distinction must also be drawn between the immunity available to the first reporting party and settlement.
The Competition Protection Law permits settlement of violations subject to the conditions, stages, and financial consideration specified by law. Settlement may occur before a request to initiate criminal proceedings is made, or thereafter and up until a final judgment is issued, in accordance with the provisions governing it.
Settlement results in termination of the criminal proceedings in relation to the conduct covered by the settlement, but it is not the same regime as that established under Article 26 for the first participant to report a horizontal agreement.
What Is the Effect of Establishing the Violation on the Agreement Itself?
Article 20 provides that the Authority shall require the infringing party to adjust its position, remove the violation, or take corrective measures immediately or within the period specified by the Board of Directors.
If the infringing party fails to comply, the effect prescribed by law concerning the unlawful agreement or contract arises, without prejudice to any other liabilities resulting from the violation.
Accordingly, the effect should not be reduced to the statement that «every unlawful agreement is automatically void upon conclusion» without regard to the wording of Article 20 and the Authority’s procedures.
What Should Companies Avoid When Dealing with Competitors?
- Discussing future prices: Or minimum prices or discount rates that the company intends to apply.
- Agreeing on customers or territories: Or agreeing not to compete with another company in a particular segment.
- Coordinating in tenders: Including cover bids, bid rotation, or agreements not to submit bids.
- Sharing non-public plans: Concerning quantities or production capacity where such sharing may support prohibited coordination.
- Undocumented communications at industry meetings: Where discussions move toward prices, customers, or individual commercial strategies.
Associations and Chambers of Commerce Are Not Exempt from Competition Law
Competitors meeting within a business association, chamber, or professional federation does not automatically make coordination between them lawful.
Industry meetings may be necessary to discuss legitimate matters such as legislation, technical standards, or general industry issues, but participants should avoid moving into discussions concerning future prices, customers, shares, bid strategies, or other information that could lead to coordination of competitive conduct.
What Should a Company Do If It Discovers That One of Its Employees Participated in a Prohibited Agreement?
The matter should be addressed promptly while preserving evidence. This includes stopping any suspicious communications with competitors, preserving relevant messages and documents, and identifying the persons involved, the scope and duration of the agreement, and the markets affected by it.
The possibility of benefiting from the reporting regime under Article 26 should also be assessed before another competitor submits a report, because priority in reporting has a decisive effect on obtaining the immunity available to the first reporting party.
These steps should be taken following careful legal assessment, because deleting communications or attempting to reshape the facts after discovery of the violation may create additional risks and make it more difficult to defend the company later.
Competition Law Compliance Program
The risks of horizontal agreements can be reduced through a practical compliance program that includes training employees in sales, pricing, procurement, and senior management on the limits of communications with competitors, establishing clear rules for participation in industry meetings, reviewing joint agreements, and creating an internal channel for reporting conduct that may violate Competition Law.
Employees should also understand that if a legitimate meeting turns into a discussion of prices, customer allocation, or bid coordination, the correct response is not merely to remain silent, but to object to the discussion, withdraw from it, and document that action in accordance with the company’s compliance policy.
Conclusion
Article 6 of the Competition Protection Law prohibits horizontal agreements that seek or lead to coordination between competitors concerning prices, market allocation, bid rigging, or restrictions on production and distribution.
The agreement does not need to be recorded in a formal written document, but the existence of an agreement or coordination prohibited by law must be established, and mere similarity of prices or commercial conduct is not sufficient.
Under the current regime, the fine may reach a percentage of the revenues generated by the product subject to the violation and may reach EGP 500 million where revenues cannot be calculated. Conversely, the law grants a highly significant benefit to the first participant who takes the initiative to disclose the agreement and provide the evidence necessary to establish it.
Accordingly, the most sensitive issues for companies are maintaining the independence of pricing decisions, controlling communications with competitors, handling non-public commercial information with caution, and acting promptly upon discovering any potential coordination.