Competing interests of trade competitors: A delicate balance

Competition is the backbone to any thriving economy. It promotes innovation through new entrants, motivates better quality goods and services, and results in favourable price points for consumers. Entrenched in the Constitution, on the one hand, is the right to property and on the other hand, the right to freedom of trade. But what happens when the conduct of one competitor, in exercising its constitutional right of freedom to trade, affects another competitor’s constitutional right to property?

In the recent Discovery / Liberty case (Discovery Ltd and Others v Liberty Group Ltd (21362/2019) [2020] ZAGPJHC 67 (15 April 2020)) Judge RM Keightley was tasked with deciding on a number of legal issues between Liberty and various companies belonging to the Discovery group, including issues of alleged unlawful competition (on the basis that Liberty was using Discovery Vitality’s “Vitality status system” for its own commercial purposes).

The general rule, when it comes to competition in trade, is that everyone is allowed to carry on his or her trade or business in competition with others and without hinderance, provided that the competition is lawful. Determining whether the conduct of competitors is or isn’t lawful can often be difficult, particularly where constitutional protests are raised – just because something appears to be potentially unethical, does not mean that it is necessarily unlawful.

In the Discovery / Liberty case, Discovery claimed that Liberty was using the Vitality status of its Vitality members as a risk proxy for calculating Liberty’s own Wellness Score for the marketing and selling of its Wellness Bonus add-on to its Liberty Plan, and that this not only competes with Discovery, but it amounts to Liberty essentially “leapfrogging” over the time, effort, resources and expense put in by Discovery Vitality to its Vitality programme. In essence, Discovery argued that Liberty was using Discovery Vitality’s property as a shortcut to making its own commercial offering. This, Discovery argued, is unlawful.

The court, however, held that Discovery Ltd (merely a holding company) and Discovery Vitality (which administers the Vitality programme) and Liberty were not, in fact, trade competitors. Therefore, the court had difficulty in accepting Discovery’s argument that Liberty had engaged in unlawful competition by making indirect use of the business systems and operations underpinning the Vitality programme to win customers away from Discovery Life (the actual trade competitor of Liberty Group), in circumstances where it was not Discovery Life’s business system or information being used. Put differently, there was a disconnect between the subject matter of the alleged unlawful conduct and the competitor claiming to be harmed.

The court also did not accept Discovery’s argument that they should be regarded as one economic unit on the basis that (1) the resources of the group, including the experiences of Discovery Life, are used in the development and maintenance of the Vitality programme; and (2) Discovery Ltd ultimately stands to suffer a loss in the value of its shares and dividends accruing from its shareholding in Discovery Life, as a result of Liberty allegedly unlawfully taking business away from it.

This, coupled with the fact that the Vitality status of Vitality members is non-proprietary information (which customers made publicly available) meant that there was no lawful restriction on Liberty in being able to use same. The court pointed out further that Liberty’ s use of the Vitality status of Discovery Vitality members actually encourages customers to remain, or become Discovery Vitality members.

In short, the court took the view that there was nothing wrong (and nothing unlawful) with Liberty’s motive to compete with Discovery Life. Liberty’s interests in advancing its constitutional right to freedom to trade were legitimate and thus could not be stifled by Discovery’s interests in protecting its right to property.

This case is the perfect example of showing how our courts loathe encouraging monopolies in the economic sector by stifling competition, which could ultimately have detrimental effects on various business sectors and the public at large. However, it is important to bear in mind that the balancing of competitors’ competing interests will always depend on the facts at hand and competitors should always remain cautious and vigilant in ensuring that their conduct remains within the bounds of lawfulness. Often, this is a fine line and obtaining legal advice prior to venturing off into the competitive-sunset could be the difference between risk free competition and potentially lengthy and expensive litigation.