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W&P Newsletter – Indirect Evidence in Cartel Cases: Analysis on Admissibility and Precedents

As in many other jurisdictions, the Indonesian Government views cartels as a major threat to the country’s economy as they significantly impede effective business competition and potentially harm consumers. For these reasons, the Indonesian authority has been putting in a great deal of effort to prevent and combat cartel practices and investigate cartel allegations, as well as imposing serious sanctions ranging from the issuance of an order to annul an agreement or cease an activity to the imposition of an administrative fine.

The Indonesian Business Competition Supervisory Commission (Komisi Pengawasan Persaingan Usaha or “KPPU”) has admitted on many occasions that it has difficulty proving the  collusive agreement between business competitors, by which they arrange to lessen or stifle fair competition among them, because cartel parties are likely keep their collusive deals or arrangements under wraps, leaving the KPPU with a mind-boggling task of uncovering these collusive practices.

One approach taken by the KPPU in its endeavour to prove the existence of a cartel is the use of “indirect evidence”. This approach, however, has generated debate among practitioners and scholars because indirect evidence is not recognized for an antitrust case examination under Article 42 of Indonesian Antitrust Law No. 5 of 1999 (as amended, “IAL”).

This edition of our newsletter discusses the use of indirect evidence by the KPPU and the Indonesian courts’ attitude towards the matter.

Background of Indonesian Anti-trust Law

The IAL was issued not long after a monetary crisis hit Indonesia in 1998, and the law adopted the German Antitrust Law as well as the internationally recognized standards issued by UNCTAD (United Nations Conference on Trade and Development). Due to its hasty enactment process, many believe that the IAL is not sufficiently comprehensive in covering complex and sophisticated antitrust matters in Indonesia. To overcome the shortcomings and to further implement the IAL, the KPPU as the national antitrust authority is vested with broad powers to issue numerous regulations to support its duties, including investigating and adjudicating cases relating to alleged violations of the IAL. 

IAL on Cartels

Article 11 of the IAL and KPPU Regulation 4/2010 set the general rule on cartels, which include i) price fixing (Article 5 of the IAL); ii) market allocation (Article 9 of the IAL); and iii) group boycotts (Article 10 of the IAL).[1] Price fixing, also known as hardcore cartel,[2] and group boycotts fall under the “per se rule principle, meaning that once certain parties enter into a restrictive agreement, they can be immediately considered in violation of the IAL regardless of its impact on the market, while the rest falls under the “rule of reason” principle. 

Proving the existence of a cartel is not an easy task for the KPPU, which generally relies on direct evidence. In practice, direct evidence is hard to obtain, and the situation is compounded by the fact that the IAL only accepts direct evidence in the examination of antitrust cases.

KPPU’s Views and Policy on Indirect Evidence

Realizing the enormous challenges of proving a cartel by relying solely on direct evidence, the KPPU began to admit indirect evidence (alat bukti tidak langsung) in the evidentiary process. The so-called ‘indirect evidence’, also known as ‘circumstantial evidence’, does not immediately point to the terms of an agreement but simply establishes collateral facts from which the material facts may be inferred.

To that end, the KPPU then issued KPPU Regulation No. 4 of 2011 as the guidelines for implementing Article 5 of the IAL on Pricing, where the KPPU for the first time explicitly used the term ‘indirect evidence’. The regulation was further reinforced by KPPU Regulation No. 1 of 2019 concerning the Handling of Business Competition Cases.

Today the KPPU seems to be more and more aggressive in utilizing indirect evidence in cartel cases. In fact, the KPPU has on many occasions conveyed its views and policy on the use of the following types of indirect evidence:

  1. Communication Evidence

Communication evidence refers to any data and/or documents showing an exchange of information or communication between parties allegedly agreeing to engage in monopolistic practices and/or unfair business competition. A meeting and/or communication between competitors, even though without the specific mention of the price, production capacity, and production cost structure, is potentially deemed as communication evidence. As can be seen from some KPPU decisions on cartel cases, such as the 2014 Tire Cartel Case, the 2015 Motorcycle Cartel Case, and the 2016 Imported Beef Cartel Case, communication evidence may include casual meetings (e.g., golf meetings) as well as association meetings, whether or not followed by minutes of meeting/confirmation emails, or (in the absence of the minutes of meeting) parallel business conduct or price fixing.

  1. Economic Evidence

Economic evidence may take the forms of a scientific argument supported by quantitative and/or qualitative data analysis methods as well as the results of expert analysis used by the KPPU to support its allegations of monopolistic practices and/or unfair business competition. Typically, the KPPU would take into account the following:

  • Evidence related to market structure
  • Market Concentration Level

The KPPU analyses the level of market concentration based on the market share (i.e., a company’s percentage of an industry’s total sales, which can be obtained by comparing its sales volume/value and the level of national consumption). The KPPU normally uses several methods (e.g., Herfindahl – Hirschman Index (“HHI”), CRn) to determine a party’s market power (or concentration).

  • Relationship between the Reported Parties in the Production Activity Chain

Integrated companies (e.g., suppliers and distributors) tend to be deemed by the KPPU as an element of market domination.

  • Product Homogeneity
  • Behavioural Evidence
  • Price Parallelism, namely, a similarity in price trends among competitors at the same time.
  • Parallel Sales, namely, the same pattern of sales volume of goods/services or the same pattern of sales rescheduling among competitors.
  • Excessive Price and/or Excessive Profit leading to consumer loss.
  • Facilitating Practice, for example, through resale price maintenance with the aim of minimizing price variations at the consumer level.

Court Precedents

Despite the increasing use of indirect evidence by the KPPU, Indonesian courts appear to be rather reluctant to admit indirect evidence because the IAL does not expressly provide for the use of indirect evidence. This often leads to inconsistencies in their decisions when it comes to the use of indirect evidence.

In some cases, the KPPU has difficulty in convincing courts to accept indirect evidence, and the KPPU’s allegations are often rejected by Indonesian courts when cases are appealed by the defendants. For example, in the 2009 Oil Cartel Case, the panel of judges at the appeal and cassation levels rejected the KPPU’s arguments, holding instead that indirect evidence is not to be equated with the evidence referred to in the IAL and it is not recognized in the evidentiary process of a business competition case. Because the Indonesian civil-law system requires judges to strictly refer to the written law (in this case, the IAL), the judges should refuse to admit indirect evidence in the adjudication of cartel cases. In other words, indirect evidence should not be admitted by the court in deciding a case. Similarly, in the 2010 Pharmacy Cartel Case, the indirect evidence submitted by the KPPU was also rejected by the court on the same grounds that indirect evidence was not recognized by both the Indonesian law in general and the IAL in particular. Furthermore, considering that business competition cases are subject to the principles of criminal law, the Court ruled that indirect evidence is not equivalent to the inferential evidence (bukti petunjuk) as meant by Article 188 paragraph (2) of the Indonesian Code of Criminal Procedure.

Nonetheless, because Indonesia is a civil-law country, Indonesian courts are not bound by case precedents, leading to inconsistencies in the courts’ attitudes towards indirect evidence in deciding cartel cases. As evident from the 2014 Tire Cartel Case, the 2016 Motorcycle Cartel Case, and the 2016 Imported Beef Cartel Case, the Court admitted indirect evidence in the relevant proceedings. In the 2014 Tire Cartel Case, the Indonesian Supreme Court explicitly affirmed the validity of indirect evidence, arguing that certain agreements related to prices, production, territories, or other unfair competition agreements are often concluded tacitly, and for this reason indirect evidence can be accepted as valid evidence as long as it is sufficient and logical, and there is no other stronger evidence that can weaken the indirect evidence.

In practice, many practitioners and scholars believe that the use of indirect evidence, especially economic evidence, may pose serious challenges. For example, the pattern of price-parallelism in the market can occur naturally due to pure business competition and not necessarily due to the intention of the price-fixing agreement (also called “conscious parallelism”). Therefore, obtaining valid indirect evidence remains a challenging task, and before Indonesian courts can widely and confidently use indirect evidence, it is necessary to first have an underlying law that accepts and regulates in detail the use of indirect evidence in Indonesian courts. Otherwise, the KPPU will continue to have difficulty enforcing cartel laws and regulations, and the uncertainties and lack of confidence experienced by businesses will interfere with the Government’s ambitious plan to bring more investments to Indonesia.

One thing that all businesses should bear in mind is that they need to be familiar with and strictly adhere to the provisions of the IAL and all its relevant implementing regulations to avoid potential legal and financial issues. It is best for a business to consult with the local counsel before establishing any communication with other businesses, including holding meetings within the association.

For further information on the above, please contact W&P : antitrust@wplaws.com

[1] KPPU Regulation No. 4 of 2010 concerning Guidelines for Article 11 of the IAL on Cartels.

[2] Wahyuningtyas, Sih Yuliana, Challenges in Combating Cartels, 14 Years After the Enactment of Indonesian Competition Law, pg. 284. Available at https://yars.wz.uw.edu.pl/images/yars2014_7_10/279.pdf. Accessed on 17 December 2020