The Malaysia Competition Commission (“MyCC”) has imposed a financial penalty of RM10,302,475.97 against Dagang Net Technologies Sdn. Bhd. (“Dagang Net”) for an abuse of its dominant position under section 10(1) of the Competition Act 2010 (“CA 2010”) by engaging in exclusive dealing through the imposition of exclusivity clauses on software providers of the National Single Window (“the MyCC Decision”). The MyCC held that the anti-competitive conduct of Dagang Net harms competition in the market because it prevents the software providers from providing similar services to end users under an upcoming uCustoms system.
 
BACKGROUND FACTS
 
Dagang Net is a wholly owned subsidiary of Dagang NeXchange Berhad, a company listed on the Main Market of Bursa Malaysia, and carries on commercial activities including, inter alia, the provision of B2G e-commerce services and computerised transaction facilitation services. In 2009, Dagang Net was appointed by the Government to be the sole provider of a National Single Window (“NSW”) which is an electronic-based ecosystem that enables customs-related documents and transactions to be transferred electronically between the trading communities and regulatory authorities in Malaysia via a single point of entry. The trading communities include manufacturers, importers, exporters, freight forwarders and shipping agents (hereinafter collectively referred to as “end users”).
 
As the sole service operator of the NSW, Dagang Net provides a variety of services which are essential to end users engaged in import and export trading activities. In order to utilise such services, the end users and regulators have to transmit information via the NSW which is only possible using a system known as Sistem Maklumat Kastam (“SMK”) which is operated by the Royal Malaysian Customs Department (“RMC”). In relation to one of the essential services provided by Dagang Net, the end users must purchase a specific software from any software providers in the market. However, it is noted that the use of this software must be connected to an electronic mailbox (“e-mailbox”). Dagang Net is the sole generator of the e-mailbox.
 
In 2013, the Government announced its intention to launch a Ubiquitous Customs (“uCustoms”) System to merge the current NSW-SMK system, which will be operated by the RMC. Pursuant to this, the RMC issued a Request for Proposal for uCustoms Service Providers and ultimately two enterprises were appointed, including Dagang Net. However as at the date of the MyCC Decision, the uCustoms System has not yet been finalised and the current trade facilitation system is still in operation wherein Dagang Net is the sole service provider.
 
Since 2008, there were agreements in place between Dagang Net and various software providers for the provision of e-mailboxes. However, prior to the appointment of Dagang Net as a uCustoms Service Provider, it had invited its software providers to enter into a new agreement which contains an exclusivity clause. This clause stipulates that during the tenure of the agreement, the software providers will not engage with any other Service Providers who may be appointed under the uCustoms System to provide similar services to the end users. Some of Dagang Net’s software providers rejected this clause and refused to sign the new agreement and subsequently their respective end users were unable to obtain e-mailboxes from Dagang Net.
 
Based on two separate complaints received in relation to the above conduct, the MyCC launched an investigation into Dagang Net and released its Proposed Decision that Dagang Net had abused its dominant position by imposing the exclusivity clause and failing to provide e-mailboxes to end-users. Following the written and oral representations by Dagang Net, the MyCC went on to issue its final decision which was released on 26 February 2021.
 
THE CA 2010
 
The salient provisions of the CA 2010 in relation to an abuse of dominant position are as follows:
 

FINDINGS BY THE MYCC
 
It is noted that the MyCC takes the view that Section 10 is an effect-based prohibition that should not be narrowly interpreted and that the list provided thereunder is non-exhaustive. As such, the imposition of the exclusivity clause by Dagang Net is a conduct which falls within the ambit of the Section 10.
 
Relevant Market and Dominant Position
 
The relevant market identified in the instant case is the provision of trade facilitation services in Malaysia which includes both the NSW-SMK system and the uCustoms system. The MyCC held that Dagang Net, operating as the sole provider in the provision of trade facilitation services under the NSW makes it a legal monopoly occupying a dominant position within the meaning of the CA 2010.² In considering the position of monopolies the MyCC stated that:
  In addition, the MyCC held that the economic strength of Dagang Net as a monopoly is further strengthened by the existence of various barriers to entry and the lack of countervailing buyer power in the relevant market which prevents potential competitors from accessing the market and existing ones from expanding therein.⁴
 
Abuse of Dominant Position
 
The MyCC considered the European Commission’s approach in deciding as to what comprises an “abuse”, in that, it is viewed objectively and relates to the behaviour of the dominant enterprise insofar as it is able to influence the structure of a market. The abusive conduct is said to result in “the weakening of competition and hinders the maintenance of the existing degree of competition or the growth of competition in the market”.⁵
 

The MyCC held that the exclusivity arrangement by Dagang Net disincentivised competition⁶ and highlighted that whether or not the exclusivity clause has taken legal effect due to external factors, such as market operations, is immaterial because upon execution the exclusivity clause would have already borne its effects for the tenure of the agreement.⁷ It was further held that the conduct of Dagang Net is capable of having significant effects of preventing, restricting or distorting competition in the upcoming uCustoms system market, specifically at the upstream service provider level and that such conduct would create barriers to entry for competitors and potentially strengthen Dagang Net’s position in the uCustoms market.⁸
 
On the basis that Dagang Net had imposed the exclusivity clause on software providers and failed to supply the end users of the software providers with the requisite e-mailboxes for the purposes of trade facilitation on the NSW-SMK system, the MyCC concluded that the imposition of the exclusivity clauses constitutes an abuse of Dagang Net’s dominant position in the relevant market.⁹
 

Notwithstanding the above, based on the written and oral representations of Dagang Net, the MyCC also held that the refusal to supply e-mailboxes to end users did not, in itself, amount to an abuse of dominant position due to the insignificant effect on the relevant market. This is because the Dagang Net software providers were still able to utilise the current trade facilitation system and were not foreclosed from the market. Further, the end users were still able to engage other software providers and, as such, there was insufficient evidence to show that the refusal to supply e-mailboxes has caused significant harm to competition in the relevant market.
 
Reasonable Commercial Justification
 
The MyCC decided that there was no reasonable commercial justification for the imposition of the exclusivity clause and it was merely to foreclose the market for the provision on trade facilitation services and for Dagang Net to retain its current market share in view of the upcoming uCustoms system.¹⁰
 
CONCLUSION
 
This MyCC Decision is pivotal as it is the first competition case in Malaysia which concerns exclusive dealings. This creates a crucial precedent in establishing the position that is, and will be, adopted by the MyCC in addressing future issues relating to exclusive arrangements. On this basis, it is prudent for all enterprises carrying out commercial activities in any market in Malaysia, particularly those with a high market share, to consider the implications of exclusive dealings and arrangements.
 
Article written by Tan Shi Wen (Partner) and Angela Hii (Associate) of the Competition Law Practice Group of Skrine.
 

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