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    Kenya: New 10% Competition Rule for Digital Companies – What You Need to Know

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    The digital landscape in Kenya is on the cusp of a transformative shift with the introduction of the Competition (Amendment) Bill, 2024. This landmark legislation is poised to reshape how businesses, particularly tech giants like Google, operate within the Kenyan market. By modernizing competition law and empowering the Competition Authority of Kenya (CAK), the Bill aims to foster a more transparent, fair, and competitive environment for all players in the digital economy. From defining the contours of dominance in the digital age to protecting smaller businesses from unfair practices, this Bill has far-reaching implications that could redefine how tech companies like Google navigate the Kenyan market. Below, we delve into the key provisions of this Competition Bill and their implications for digital businesses operating in Kenya.

    Key Provisions and Implications

    Expanded Definitions:

      • Person: The definition of “person” is broadened under the proposed law to align with the Constitution of Kenya. This now explicitly includes both natural persons (individuals) and legal entities (companies, partnerships, etc.). This ensures that the Competition Act covers all actors in the marketplace, whether they are individuals or businesses, preventing unfair practices by any entity.
      • Accredited Consumer Body: This new term replaces “recognized consumer body.” The bill now requires formal accreditation from CAK meaning that consumer advocacy groups must receive formal approval from the CAK, ensuring they meet specific standards and can effectively represent consumer interests.
      • Digital Activities: The Bill introduces “digital activities”. This term encompasses a broad range of online services, such as online marketplaces, search engines, social networking platforms, video-sharing platforms, and cloud computing services. This definition recognizes the unique nature of digital markets, where dominance can be achieved rapidly, and companies can operate across multiple sectors. In terms of its application in practical terms, digitally focused companies like Google may be affected. 
        For example, Google’s services, including search, advertising, and cloud computing, fall squarely under this definition. This categorization subjects Google to the specific regulations outlined for digital platforms.
      • Strategic Market Position: This refers to a situation where a company has a strong position in the market, allowing it to operate independently of its competitors and customers. This can happen even without a dominant market share, especially in digital markets due to factors like network effects and access to data. 
        Here, Google’s vast reach and influence in Kenya could easily be interpreted as having a “strategic market position.” The CAK may scrutinize its ability to act independently of competitors and customers.
      • Superior Bargaining Position: This new term defines a situation where a company can leverage its size or market influence to impose unfair terms on its suppliers or customers. This provision aims to protect smaller businesses from being exploited by larger entities. Given its market dominance, Google could be investigated for potential abuse of its superior bargaining power in negotiations with advertisers, content creators, or other partners, under this section. 

      Dominance in Digital Markets:

      Recognizing the unique dynamics of digital markets, the Bill acknowledges that a company can be deemed dominant even with a market share below 40%. To assess dominance in digital markets, the CAK will consider factors like:

      • Network Effects: The value of a product or service increases as more people use it, leading to potential barriers to entry for competitors.
      • Economies of Scale: Digital businesses often achieve lower costs as they grow, making it harder for smaller players to compete.
      • Switching Costs: The difficulty for users to switch from one provider to another, often due to data portability issues, can contribute to dominance.
      • Importance of Intermediary Services: Platforms that connect buyers and sellers, like online marketplaces, can become gatekeepers, making them crucial for market access.

      In practical terms, Google’s search engine holds a dominant market share in Kenya. The Bill’s provisions for assessing dominance in digital markets, considering factors like network effects, economies of scale, and switching costs, will be highly relevant to Google. The CAK may examine whether Google’s dominance in search gives it an unfair advantage in other areas like online advertising.

      By considering these factors, the CAK aims to ensure fair competition in the digital age.

      Abuse of Superior Bargaining Position:

      This new provision addresses situations where a company with a strong market position exploits its leverage to impose unfair terms on its suppliers or customers. Examples of such abuse include:

      • Delayed Payments: Large companies forcing smaller suppliers to accept extended payment terms.
      • Unilateral Contract Termination: Abruptly ending contracts without valid reasons or sufficient notice.
      • Unreasonable Data Collection: Collecting and using data from suppliers or customers without their consent or for unfair advantage.

      The Bill empowers the CAK to investigate and sanction such practices, creating a fairer business environment.

      Under this section, the CAK could investigate Google for any practices that could be interpreted as abusing its dominant position over advertisers or content creators. This could include imposing unfair contract terms, delayed payments, or unilateral changes to algorithms that disadvantage smaller businesses.

      Intermediaries in Dominant Positions:

      The Bill enhances the regulation of intermediaries like online platforms and app stores. It aims to prevent these platforms from engaging in anti-competitive practices like unfair discrimination against smaller businesses or using their market power to stifle competition.

      As a major digital platform, Google operates as an intermediary connecting users with information, services, and advertisers. The CAK may scrutinize Google’s role as a gatekeeper and investigate whether it engages in anti-competitive practices like favoring its own services or discriminating against smaller competitors.

      Mergers and Acquisitions:

      The amendment includes privatized institutions in the scope of merger control, ensuring that such transactions are also subject to scrutiny. Additionally, it allows for public input on proposed mergers, increasing transparency and ensuring that the broader societal impact of mergers is considered. 

      For example, if Google were to acquire a Kenyan digital company, the transaction would be subject to the enhanced merger control provisions of the Bill, including potential public scrutiny and a broader assessment of its impact on the digital ecosystem.

      Consumer Protection:

      The Bill clarifies provisions related to false or misleading information and withholding material product information. These updates aim to safeguard consumer rights by ensuring that they have access to accurate and complete information to make informed choices.

      Under this section, Google would need to ensure its practices, particularly regarding data collection and advertising, adhere to the stricter consumer protection provisions of the Bill. Any misleading information or failure to disclose material information about its services could lead to CAK intervention.

      Enforcement and Penalties:

      To deter anti-competitive behavior, the CAK’s enforcement powers are strengthened. The Bill introduces financial penalties of up to 10% of the annual turnover for non-compliance with CAK orders. The Authority can enforce orders through various means, including property attachment and debt collection. 

      Here, Google’s operations in Kenya would be subject to the enhanced enforcement powers of the CAK. Non-compliance with CAK orders could result in substantial financial penalties of up to 10% of annual turnover.

      What This Means for You

      • Businesses: If you operate in a market with significant bargaining power (especially in the digital space targeting Kenya), you’ll need to be more cautious about your business practices to avoid accusations of abuse under the proposed competition law. Mergers and acquisitions will also face stricter scrutiny.
      • Consumers: You can expect stronger protections against unfair practices and misleading information, particularly online.
      • Smaller Businesses: Smaller businesses, especially digital businesses in Kenya, should be aware of their rights under the law and report any unfair practices by larger companies to the Competition Authority of Kenya.
      • Accredited Consumer Bodies: Your role in advocating for consumer rights becomes even more significant, as you’ll be able to notify the Authority of potential violations. 
      • Suppliers: The provisions on abuse of superior bargaining position are important if you supply goods or services to larger companies. You will have more protection against unfair practices.
      • Merging Companies: If your company is involved in mergers or acquisitions, the updated provisions may impact your regulatory process.
      • All Businesses: The broader definitions of “person” and the CAK’s increased powers can affect all businesses operating in Kenya.

      The bill is still in the legislative process and may undergo changes. To that effect, the Competition Authority of Kenya (CAK) has invited stakeholders to submit comments on the proposed amendments to the Competition Act by June 11. If passed, the new regulations will mirror similar antitrust laws in the United States and Europe, where tech giants have faced numerous investigations and substantial fines for anti-competitive practices.

      In March, for example, European antitrust regulators announced an investigation into Apple, Google, and Meta, examining their influence over users’ ability to switch to competing services like social media platforms, internet browsers, and app stores.

      Violating the European Union’s new Digital Markets Act could result in fines of up to 10% of a company’s global annual turnover.

      Charles Rapulu Udoh has carved a niche at the forefront of Africa’s booming tech scene. With years of experience, Udoh has become a go-to expert for multi-million dollar deals in venture capital, private equity, and intellectual property across a vast landscape — from Delaware and New York to Singapore and South Africa. But his expertise extends beyond just the legalese. Udoh is also a corporate governance, data privacy, and tax whiz. An award-winning writer and researcher, he’s passionate about chronicling Africa’s startup story, cementing his position as a true pioneer in the field.

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