Background

On January 2010, the Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha – “KPPU”) issued Regulation No. 7 of 2010 on the Guidelines of Interlocking Directorate (the “Guidelines”). Interlocking on directorate was formerly stipulated in Article 26 on Law No. 5 of 1999 on Prohibition of Monopolistic Practice and Unfair Business Competition (the “Antimonopoly Law”).

The Antimonopoly Law prohibits a person to hold a position as Director and/or Commissioner in two or more companies if the companies conduct business in the same relevant market, have close connection in the field or type of business, and can jointly control the specific goods or services, which may lead to monopolistic practice and unfair business competition.

Objectives

The guidelines provide clearer explanation of matters that have not been specified in the Article 26 on Antimonopoly Law. The purposes of the Guidelines are:

1.  Providing the same insight and perception about interlocking directorate;

2.Providing a basic understanding and clear direction, so there will be no other interpretations other than those described in the Guidelines;

3.  Providing a basis for others to behave, so that they will not inflict losses to other party, and to create a condition of fair business competitions.

In the enforcement process of Antimonopoly Law, the investigation on violation of interlocking directorate, as stipulated in Article 26 of Antimonopoly Law, prioritizes the decision and opinion of the KPPU, and not restricted only to the Guidelines.

Wide Interpretations of Director and Commissioner

Previously, Article 26 on Antimonopoly Law only regulates the director and commissioner in the companies. But according to the Guidelines, the element of director also includes the interpretation of top level management in business sectors on other forms, which has the authorities to establish the company policy. The interpretation of the top level management includes, such as, (i) management of a civil partnership; (ii) management of a firm; (ii) management association which has a legal entity status; (iii) management of a state-owned enterprise; etc.

Consequently, the definition of director also includes some terminology of top-level management, like executive vice president, vice president, senior vice president, president director, director, and several terms in the board of a company. As for commissioner, includes the organ in other business forms, which are similar to the role and duties of the commissioner, for example in the foundation’s supervisory organs.

Test Case

In the example case No. 1/KPPU/L/2003, between PT Garuda and PT Abacus, KPPU decided that there are violations of Article 26 of Antimonopoly Law. In this case, KPPU found Interlocking Directorate by two directors of PT Garuda, which also have positions as commissioner in PT Abacus. The relationship between PT Garuda and PT Abacus is a holding company with its subsidiary (vertical relationship), where PT Garuda is a provider of air transportation services and PT Abacus is a provider of computerized reservation system (“CRS”). CSR is a reservation system or data seat inventory, which linked online to the flight booking system. The vertical relationship between PT Garuda and PT Abacus is binding exclusively into a working relationship, with the policy to make Abacus’ CRS as the only reservation system in PT Garuda. The exclusive cooperation between the two companies harms other travel agencies that used CSR other than Abacus. The facts and evidences in this case also reveal several violations to provisions in the Antimonopoly Law, which automatically evidencing the violations and elements on Article 26 of Antimonopoly Law.

Sanction

There are 3 (three) kinds of sanction, as follows:

1.  Administrative sanction. KPPU has the right to determine an administrative sanction to the violations of Article 26 of Antimonopoly Law. The sanctions are; (i) instruction to stop the activity, (ii) compensation payment and/or (iii) fine in the amount of Rp. 1.000.000.000,- (one billion Rupiah) to Rp. 25.000.000.000,- (twenty five billion Rupiah).

2.  Basic criminal sanction. The sanctions are: (i) fine in the amount of Rp. 5. 000.000.000, – (five billion rupiah) or imprisonment as a fine substitute, for maximum of 3 (three) months; and (ii) fine in the amount of Rp. 1.000.000.000, – (one billion Rupiah) to Rp. 5.000.000.000, (five billion Rupiah) – if refusing give evidence, and/or refusing to provide information, and/or inhibit the process of investigation and inspection.

3.  Criminal addition, an additional penalty, (i) revocation, (ii) the prohibition to occupy the post of director or commissioners; and/or (iii) termination of a certain activities that can harm other parties.

Rule of Reason

The Guidelines make it clear that the violation of Article 26 is subject to rule of reason. Interlocking Directorate is only prohibited if it violates the prohibition stipulated in the Antimonopoly Law. Assessment of the violation on interlocking directorate is subject to the approval of KPPU. They will then decide whether the interlocking directorate will cause unfair competition of monopolistic practice.