Navigating Restrictive Acts under Kuwaiti Anti-trust Laws

The prevalence of restrictive clauses in contracts with a Kuwaiti nexus, introduced by both service providers and product suppliers, has become a notable feature in the business landscape. These clauses often seek to limit client autonomy by restricting the resale of purchased goods or engagement with competing service providers. However, the legality of such clauses requires a deep understanding of Kuwait’s antitrust laws, particularly as outlined in Law No. 72 of 2020 on the Protection of Competition (“CPA Law”) and CPA Decision No. 14 of 2021 on the issuance of the executive bylaws of the CPA Law (“CPA Bylaws”, together with the CPA Law, the “CPA Laws”). 

The CPA Laws explicitly prohibit acts that impede free competition within the Kuwaiti market. However, instances persist where service providers or product suppliers include contractual clauses restricting client resale of purchased goods or engagement with competitors. This apparent incongruity can be explained by the targeted application of the CPA Laws. The prohibition on such restrictive primarily apply to ‘dominant persons’ within the ‘relevant market’.

Before delving into the intricacies of how these acts are limited to ‘dominant persons’, it is imperative to understand the applicability of the CPA Laws. These laws extend their jurisdiction to acts committed both within Kuwait and abroad, provided they result in preventing, restricting, or damaging free competition within the Kuwaiti market.

Article 51 of the CPA Bylaws further explains that a dominant person shall not abuse the control to curb, limit, or prevent competition, including, for example, the following:

1. Directly or indirectly determining or imposing prices of products or setting minimum prices or conditions of reselling; 
2. Performance of an act that impedes another person’s entry to the market, causes him to leave the market, or exposes him to losses;
3. Fabrication of unreal deficit or abundance of products;
4. Discrimination between customers in similar contracts in terms of prices of products or conditions of sale and purchase or any other form;
5. Obligating the customer to abstain from dealing with a competing person;
6. Withholding the products available in the related market in whole or in part;
7. Rejecting to deal with a particular customer on usual commercial terms without legitimate reason; or
8. Conditioning the conclusion of contracts or agreements by accepting commitments that are, by nature or pursuant to the commercial use, irrelevant to the subject matter of the original dealing or agreement.

To apply these provisions pursuant to the CPA Laws, a person shall be in a dominant position in the relevant market, as the dominant position is defined in the CPA Law as ‘a situation where any person, either by himself/herself or acting together with other persons, is able to control or to influence the Relevant Market and to act, to a considerable extent, independently of its competitors, customers, or consumers’ (“Dominant Position”). 

How the CPA determines that a person is in a dominant position

1. Identifying the Relevant Market

The CPA shall first identify the Relevant Market, which is defined in the CPA Law as the market that consists of two elements, which are:

• Relevant Products: All products that are deemed mutually interchangeable or substitutable to meet the needs of the service or goods consumer; and
• Relevant Geographic Scope: The area in which interchangeable products are exchanged.

(the “Relevant Market”)

To put it simply, the Relevant Market is the market for a specific product in a specific geographic area. Moreover, to determine the market for a specific product, it is important to see the alternative products for it; however, such ‘alternativity’ may not be broad to include all products in that industry, as it should be limited to what the customer would go for in the absence of that product.

To determine the relevant market, we can use Tesla Electronic Cars as an example. It can be categorized as in:

1. The market of Tesla products in Kuwait;
2. The entire market of American-manufactured cars in Kuwait;
3. The market of American-manufactured electronic cars in Kuwait; or
4. The broader market of electronic cars in Kuwait.

The choice among these options hinges on the perspective adopted in determining the alternatives a consumer might seek in the absence of Tesla Electronic Cars.

• Determining whether that person is in a dominant position in that Relevant Market

Once the relevant market is established, the CPA will conduct a study to determine if a person has a dominant position in the Relevant Market to see if that person is able to control or influence the Relevant Market and if it can act to a considerable extent, independently of its competitors, customers, or consumers. In doing so, and per Article 52 of the CPA Bylaws, the CPA can consider the fulfilment of one or all the following criteria:

1. Relevant Market for a specific product in a particular geographical area;
2. Market share of the concerned person;
3. The actual or potential competition level for the number of competitors, size of production, and demand for the product;
4. Obstacles that hinder, curb, or preclude the entry of competitors to the market; and/or
5. Any other standards set by the CPA board of directors.

This gives flexibility to the CPA in determining a dominant position as they are allowed to take into account only one of the foregoing criteria to assert their study in relation thereto, as long as that ‘dominance’ is enabling the person to control or to influence the Relevant Market and if it can act, to a considerable extent, independently of its competitors, customers, or consumers. 

To conclude, not all restrictive acts are penalized by the CPA Laws, as some non-dominant persons are able to do those acts in so far as it is established that they are not in a Dominant Position in the Relevant Market. Nevertheless, the interpretation of which is subject to the CPA’s discretion in applying the CPA Laws guidelines, which, as you may see above, provides the CPA ultimate flexibility in doing so.

Adel Alasousi