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Competition Law in Australia enters uncharted waters

The Federal Government last week passed the Competition and Consumer Amendment (Competition Policy Review) Act. This and the linked Competition and Consumer Amendment (Misuse of Market Power) Act amend the Competition and Consumer Act 2010 (CCA) to implement recommendations from the ‘Harper Review’ of competition law that commenced in 2014.

Together, the two Acts implement the biggest changes in Australia’s competition laws in over twenty years, including:

  • Introducing the controversial ‘effects test’ for misuse of market power;
  • Prohibiting ‘concerted practices’;
  • Changing merger review processes;
  • Removing the per se prohibition on third line forcing; and
  • Providing a notification process to allow immunity to be more easily obtained for resale price maintenance.

The changes commence 6 months after the date of Royal Assent, meaning they are likely to come into effect in late April or May 2018.

Misuse of market power (section 46)

The most controversial change is the introduction of an ‘effects’ test to determine whether a company has misused its market power.  The new section 46 prohibits a person with a substantial degree of power in a market from engaging in conduct which has the purpose, effect or likely effect of substantially lessening competition. Conduct that lessens competition may contravene the law even if this was not the intention.

It remains to be seen how significant the ‘effects’ element will prove in practice. Few market power prosecutions have failed because the ACCC was unable to meet the current requirement to prove an anti-competitive purpose. There is also surprisingly little case law in Australia on what constitutes a ‘substantial lessening of competition’.

Perhaps more significantly, the new law removes the requirement for any nexus between a company’s power and the anti-competitive effect of its conduct. The current section 46 provides that a company must not ‘take advantage’ of market power for an anti-competitive purpose. Justice French famously explained this by giving the example of a monopolist who engages an arsonist to burn down a competitor’s factory1. Although this may be conduct by a firm with substantial market power, the conduct does not take advantage of the market power, so would not be caught by the current section 46 (though, of course, it would contravene laws against arson). The new section 46 removes this ‘take advantage’ element.  As a result, French J’s arsonist may well now also be in contravention of section 46.

The ACCC is expected to release guidelines on its interpretation of the new section 46. These will provide an indication of how the ACCC proposes to enforce the new law. The true scope of the law, however, will not be known until it has been tested before the courts.

Concerted practices

A new prohibition will be introduced against engaging in ‘concerted practices’ which have the purpose, effect or likely effect of substantially lessening competition.

‘Concerted practices’ are not defined, but the Explanatory Memorandum describes them as ‘any form of cooperation between two or more firms (or people) or conduct that would be likely to establish such cooperation, where this conduct substitutes, or would be likely to substitute, cooperation in place of the uncertainty of competition.’ It goes on to state that ‘it is intended that the concept of a “concerted practice” should capture conduct that falls short of a contract, arrangement or understanding as the courts have interpreted each of those terms in section 45.’

Conduct that may be caught includes signalling intentions to a competitor or sharing competitively sensitive information with the hopes of influencing a competitor’s behaviour. The prohibition does not require direct contact between competitors (for example, signalling through public announcements may be caught) and it may not even require both parties to participate.

Companies should seek advice before sharing competitively sensitive information with competitors. Companies involved in industry associations should also review the activities of their association and the information that is shared.

Merger clearances

The ACCC will now have power to authorise a merger if it is satisfied the merger will not substantially lessen competition.  The previous right to apply directly to the Australian Competition Tribunal for merger authorisation will be removed.  However, ACCC decisions in merger authorisations can still be appealed to the Tribunal.

The existing informal merger clearance process (which is the way 99% of mergers are reviewed in Australia) is unchanged.  The current ‘formal’ merger review provisions (which have never been used) will be repealed.

Third line forcing

Third line forcing – when a business will only supply goods or services, or give a particular price or discount on the condition that the purchaser buys goods or services from a particular third party – is  currently prohibited ‘per se’ (ie, whether it actually causes any harm or not).  It will now only be prohibited if it has the purpose or is likely to substantially lessen competition in a relevant market. This means that, in most cases, businesses will no longer need to notify third line forcing conduct to the ACCC to obtain an exemption from the law.  Businesses should still seek advice if their conduct may have a material effect in the market.

Resale price maintenance

Resale price maintenance – where a supplier attempts to restrict the prices for re-supply of goods or services – continues to be prohibited ‘per se’. However, a notification process will be introduced to allow suppliers to notify the ACCC if they intend to engage in resale price maintenance. Immunity will apply automatically unless the ACCC objects within 60 days.

The Review Legislation also introduces a related parties exemption, meaning it will no longer be illegal for one company to tell another in the same corporate group how much a product should be sold for.

Cartels and joint ventures

The extraterritorial scope of Australia’s cartel laws will be reduced so that conduct overseas that does not affect trade to, from or within Australia will no longer be caught.

The joint venture exemptions have been amended to apply whether or not the relevant cartel provision is contained in a formal ‘contract’.  This means that less formal or undocumented arrangements can now benefit from the joint venture exemption.  Joint ventures for the acquisition of goods or services will be included, where currently they are not.

However, for the joint venture exemption to apply to a cartel provision, the provision must be ‘necessary’ for the joint venture.  This is a higher standard to satisfy than the current exemption which requires only that a cartel provision be ‘for the purposes’ of a joint venture.

Authorisations

Authorisation will now be available for conduct that will not cause any substantial lessening of competition, even if no public benefit can be demonstrated.  This expands the range of conduct for which authorisation will be available.  Authorisation will now also be available for mergers and misuse of market power, and the ACCC will be able to grant ‘safe harbour’ class exemptions to provide protection to categories of conduct, similar to class orders issued by ASIC and the block exemption power available in Europe.

Other changes

The Review Legislation implements many other amendments, including:

  • Amendments to Part IIIA of the CCA, including changes to clarify the declaration criteria used by the Council and designated Minister in relation to the National Access Regime;
  • Amending certain definitions, including clarifying that ‘competition’ includes competition from goods and services that are merely capable of importation; and
  • Introducing a ‘reasonable search’ defence for failure to comply with a section 155 request.

If you have any queries, please contact the Competition and Consumer Law team at HWL Ebsworth Lawyers.


1 Natwest Australia Bank Ltd v Boral Jarrard Strapping Systems Pty Ltd (1992) ATPR 40,639 at 40,644.

Important Disclaimer: The material contained in this publication is of a general nature only and is based on the law as of the date of publication. It is not, nor is intended to be legal advice. If you wish to take any action based on the content of this publication we recommend that you seek professional advice.