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Navigating Competition Law in the Expanding Technology Industry: A Focus on Hardcore Horizontal Restrictions

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As the technology industry expands at a rapid pace, it brings with it a multitude of legal issues that accompany the growth of both companies and the sector as a whole. In this article, we aim to highlight an area of law that may have been overlooked by companies and general counsel: competition law. This area has increasingly drawn the attention of regulators intent on ensuring that the market remains fair and undistorted for the benefit of consumers.

 

Heightened Competition Law Scrutiny: A Global Perspective

Competition law, or antitrust investigations, is becoming ubiquitous globally, a trend that companies and their legal teams cannot afford to neglect. Recently, U.S. regulators signaled their intention to open antitrust investigations into three major players in the artificial intelligence industry: Microsoft, Nvidia, and OpenAI. These companies, which are rapidly gaining dominance in the AI market with their software and semiconductors, are under scrutiny to determine if their practices are anticompetitive.

 

Understanding Hardcore Restrictions in Malaysia

As Malaysia positions itself as a regional technology hub—particularly in data centers, digital infrastructures, semiconductor manufacturing, and technology software—companies must be vigilant about competition law.

 

The Competition Act 2010 governs competition law in Malaysia, and it outlines strict regulations against practices that prevent, restrict, or distort competition. In the realm of competition law, context is crucial in determining whether any conduct, agreement, or arrangement has a significant anti-competitive effect. However, certain horizontal agreements are deemed to have anti-competitive objects outright, eliminating the need for further examination of their effects. These agreements, known as “hardcore restrictions,” are critical for technology companies to avoid.

 

Four Types of Hardcore Restrictions:

  1. 1. Price Fixing – Price fixing occurs when competing firms at the same market level conspire to set prices for their products or services, bypassing market competition. This disrupts free market competition and can lead to artificially high prices for consumers. In a scenario where software companies conspire to fix subscription prices, it would involve multiple companies in the same market agreeing to maintain a certain price level for their subscription services, thereby eliminating competitive pricing dynamics. For instance, if several cloud storage providers agree to set their monthly subscription fees at $20, regardless of features or quality of service, they would be engaging in price fixing.
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  3. 2. Market Allocation – Market allocation involves competitors agreeing to divide customers, markets, or geographic territories to avoid competition. This practice restricts competition and can lead to higher prices and reduced choices for consumers. In the technology industry, market allocation among competing firms might involve agreements to divide up specific customer segments, target demographics, or even technological niches to avoid direct competition. For instance, if two major social media platforms agree to exclusively target different age groups or demographics, such as one platform focusing solely on users aged 18-25 and the other targeting users aged 26-50, they would effectively be engaging in market allocation.
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  5. 3. Limiting Production, Market Outlets, Technical Development, or Investment – This type of agreement occurs when competitors agree to restrict production, market outlets, technical development, or investment to reduce competition and maintain higher prices or market shares. In the technology industry, limiting production, market outlets, technical development, or investment could manifest as agreements among competing firms to constrain the release of new products or features, restrict the expansion of distribution channels, or curb investments in research and development to maintain dominance or artificially inflate prices. For example, if several major smartphone manufacturers agree to limit the release of new models to only one per year and refrain from investing in emerging technologies, they would effectively be restricting market supply and impeding technological progress. This would result in consumers having fewer options for innovative devices and features, potentially leading to higher prices and stifling industry advancement.
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  7. 4. Bid Rigging – Bid rigging involves competing firms conspiring to manipulate the outcome of a bidding process, typically to ensure each firm wins contracts in turn. This can include agreements to refrain from bidding or submitting deliberately non-competitive bids. For instance, if multiple technology companies bid for digital infrastructure projects and agree that only one will submit a competitive bid while others submit artificially high or substandard bids, they engage in bid rigging. This practice undermines fair competition and can lead to inflated project costs and suboptimal outcomes for the contracting entity.
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Conclusion

These four types of horizontal agreements are deemed to have anti-competitive objects and are prohibited under competition law, regardless of the market shares of the companies involved. It is crucial for general counsels and organizations within the technology sector to ensure that they do not engage in any of these practices. Vigilance in adhering to competition laws not only avoids legal repercussions but also promotes a fair and competitive market environment that benefits consumers and fosters innovation.

 

Should any inquiries or concerns arise regarding competition law matters, especially within the technology sector, we encourage reaching out to our experienced legal team. With a deep understanding of both the intricacies of the technology industry and competition law, our lawyers stand ready to provide guidance and support tailored to your specific needs.


About the authors

Ong Johnson
Partner
Head of Technology Practice Group

Transactions and Dispute Resolution, Technology,
Media & Telecommunications, Intellectual Property,
Fintech, Privacy and Cybersecurity
johnson.ong@hhq.com.my

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Lo Khai Yi
Partner
Co-Head of Technology Practice Group
Technology, Media & Telecommunications, Intellectual
Property, Corporate/M&A, Projects and Infrastructure,
Privacy and Cybersecurity
ky.lo@hhq.com.my.


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