Local newspaper fight over price fixing ends up in Constitutional Court

03 July 2019 - 13:06 By SHAIN GERMANER
The Constitutional Court was adjudicating a complaint against Media24.
The Constitutional Court was adjudicating a complaint against Media24.
Image: 123RF/Stockstudio44

In a judgment that divided the justices of the Constitutional Court, a complaint against Media24 for alleged predatory price fixing has been dismissed.

In the court’s ruling on Wednesday, Justice Leona Theron detailed the lengthy history of the complaint against the media giant.

The media company was accused of predatory price fixing and essentially forcing other local Welkom newspapers out of business through the manipulation of advertising costs.

The initial complaint was lodged against Media24 at the Competition Commission by a competitor, Gold Net News.

Between 1999 and 2009, Media24 was running two newspapers in the Welkom area, Vista and Forum. While Media24 was the dominant news force in the area, it was estimated that Gold Net News catered to about a quarter of the market.

All three newspapers were distributed for free, and sustained themselves financially by selling space to advertisers. However, between 2004 and 2009, Media24 cut the rates for advertisers wishing to advertise in Forum.

In its arguments at the Competition Commission, Gold Net News insisted that the prices were so low that they amounted to pricing below the cost of producing the paper.

In January 2009, Gold Net News was forced to shut down, as it could no longer compete with the low prices charged by Media24. Nine months later, Media24 shut down Forum, leaving Vista as the sole remaining local newspaper.

Following its investigation, the Competition Commission referred a complaint of predatory price fixing to the Competition Tribunal in 2011.

The Commission argued that Media24’s pricing behaviour was predatory, and was prohibited by the Competition Act. However, the tribunal held that Media24’s pricing was not below either of the price standards contained in the section of the Competition Act. It did rule though that Media24 had contravened the catch-all section of the act that prohibits acts that could exclude competitors.

The tribunal acknowledged that while Media24 had priced below its average total costs during the period of the complaint, this alone was not enough to prove predatory price fixing.

However, it did conclude that the company was guilty of predatory pricing because it priced advertising in Forum below the average total cost of production – with the intention to perform a predatory act.

Media24 then approached the Competition Appeal Court (CAC) to overturn the decision, and succeeded on two grounds. Firstly that predatory pricing can only be proven through evidence of exclusionary conduct, and not simply evidence of intention. Secondly, the CAC believed that the price threshold set by the tribunal was inappropriate.

The Competition Commission then approached the Constitutional Court to appeal the CAC’s findings, and asked the apex court to determine the appropriate cost threshold to be used by courts in determining whether low prices constitute predatory pricing.

The Competition Commission argued in November last year, when the case was heard, that the CAC’s findings were contrary to the spirit of the Competition Act, and that the tribunal was correct in trying to assist small and medium businesses against large businesses such as Media24.

Media24 argued that the CAC was correct for insisting on evidence of predatory conduct, instead of relying on simply testing for the intent of the parties.

Theron explained on Wednesday that four separate rulings had been written by the various justices on this matter.

While some of her peers believed that the issue was not a purely legal one, and that the Constitutional Court should not interfere with the current matter, she and five of her peers (a majority) believed the apex court was well within its ambit to rule on what remains a major issue for the public.

However, because of the numerous disagreements between the judgments, the court ultimately ruled by majority - that while the leave to appeal should be granted, the Competition Commission's appeal should be dismissed with costs.