Insights

18/10/17

It’s time: Harper changes to competition law pass through Parliament

The balance of the most significant changes to Australia’s competition laws in over 40 years have today been passed by the Federal Parliament.  The changes are a response to the recommendations of the Competition Policy Review in 2015 chaired by Professor Ian Harper (Harper Review).

The Treasurer’s press release in relation to the passing of the laws states that they will come into effect ‘in the coming weeks’.

The changes to the Competition and Consumer Act 2010 (Cth) (CCA) are contained in two instruments, the Competition and Consumer Amendment (Competition Policy Review) Bill 2017 (Cth) and the Competition and Consumer Amendment (Misuse of Market Power) Act 2017 (Cth).

We summarise the key changes below.  Further analysis of the Harper Review reforms are contained in previous Insights (available here, here and here).

Concerted Practices (s 45)

  • A new prohibition against ‘concerted practices’ has been introduced.  This prohibits a ‘concerted practice’ that has the purpose, or has or is likely to have the effect, of substantially lessening competition.
  • A ‘concerted practice’ is not defined in the CCA.  However, according to the Explanatory Memorandum:
    • ‘a concerted practice is 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’, and
    • ‘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’.
  • The Explanatory Memorandum also states that a concerted practice does not require:
    • ‘the formality or legally enforceable obligations characteristic of a contract’.
    • ‘the express communication characteristic of an arrangement’.  It could occur without any direct contact between the firms – for example, when they communicate indirectly through an industry body.
    • ‘the commitment characteristic of an understanding’.  It can occur even if none of the parties is obliged to act in any particular way.
  • The new prohibition will apply to all industries.  The price signalling provisions that applied only to the banking sector have been repealed.

What this means

Businesses should be careful that in their interactions with competitors they do not – even unilaterally – share information that could facilitate conduct by their competitors that may have the effect of substantially lessening competition.

Businesses should remember that the Explanatory Memorandum envisages the prohibition applying even when there has been an indirect exchange of information.  Therefore, businesses involved in arrangements in which they communicate commercially sensitive information to a third party (e.g., an industry association) should satisfy themselves around how this information is handled by the third party.

Remember there is also no requirement for reciprocity – a ‘one way’ communication with a competitor may be a concerted practice. 

Misuse of Market Power (s 46)

  • By far the most controversial reform throughout the Harper Review, the prohibition against misuse of market power has been reformulated and broadened. 
  • Now the effect or likely effect of the alleged conduct will be considered, and it is no longer necessary to show that a corporation has “taken advantage” of its market power for a prohibited purpose.
  • The revised s 46 provides that

    A corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in:

(a) that market; or

(b) any other market in which that corporation, or a body corporate that is related to that corporation:

(i)supplies goods or services, or is likely to supply goods or services;

(ii)supplies goods or services, or is likely to supply goods or services, indirectly through one or more other persons; or

(c) any other market in which that corporation, or a body corporate that is related to that corporation:

(i)acquires goods or services, or is likely to acquire goods or services; or

(ii)acquires goods or services, or is likely to acquire goods or services, indirectly through one or more other persons.

  • The revised s 46 also removes the specific provisions dealing with predatory pricing, as this conduct will be captured under the new law.
  • We are expecting the ACCC to soon release its final Framework for Misuse of Market Power Guidelines.  These will provide a useful guide to the ACCC’s interpretation and enforcement principles, but they will not bind third parties or a court.  Early court consideration of the scope of the section will be critical.

What this means

Conduct which has the effect or likely effect of substantially lessening competition will breach s 46, even if this was not the purpose of the conduct.

Clients that have substantial market power should, to the extent they can, assess the effect/likely effect of their conduct on competition, particularly where they price below cost, introduce bundling or loyalty discounts, buy up potentially scarce inputs, or refuse to supply a competitor. 

Clients should continue to ensure that they avoid making communications or statements that could be construed as demonstrating an anti-competitive purpose.

While authorisation will be available under the new provision, we expect that this will rarely be used as proving that the public benefits (as opposed to the benefits to the corporation) arising from the relevant conduct will outweigh the public detriment from a potential misuse of market power is likely to be challenging.

Merger Clearance Process

The amendments to the merger provisions offer parties the new route of merger authorisation by the ACCC but close the path of obtaining authorisation directly from the Australian Competition Tribunal. 

The key elements of the changes are:

  • The ACCC now has the power to authorise a proposed merger or acquisition if it is satisfied that it:
    • will not (or is not likely to) substantially lessen competition; or
    • is likely to result in a net public benefit (i.e., public benefits that outweigh any lessening of competition).
  • Merger authorisations will be conducted under the ACCC’s general authorisation process (s 88 of the CCA), with some procedural differences for merger and non-merger authorisations.
  • In recognition of the commercial sensitivity associated with mergers, there is a statutory time frame of 90 days for the ACCC to determine a merger authorisation, starting from the day the ACCC receives the application.  The 90 day period may be extended if the Applicant agrees in writing prior to the expiration of the 90 days.  If the Applicant does not agree to an extension and the ACCC has not made a decision by the expiration of the 90 day time frame, the ACCC is taken to have refused the Application. 
  • The existing informal merger clearance process will remain and parties can choose whether to seek authorisation or informal merger clearance.
  • Merger parties will no longer be able to seek authorisation in the Tribunal in the first instance, but merger parties unhappy with the ACCC’s authorisation decision will be able to seek a review of the decision by the Tribunal.  The Tribunal will consider the authorisation on its merits but can only have regard to information, documents and evidence which was before the ACCC or referred to in the ACCC’s reasons for the decision.  The Tribunal can allow additional new information to be admitted if circumstances have changed or the information was not available at the time of the ACCC’s decision.  The Tribunal will have 90 days to make its decision, extended to 120 days if new information is admitted. 
  • The existing formal merger clearance process, which has never been used, has been repealed.

What this means

There is perhaps a mixed reaction to these changes.  On the one hand, the ability to present a public benefits case to the ACCC without the need to go through the full Tribunal process can be viewed as a positive.  However, the option of going straight to the Tribunal was being increasingly used, most recently by Tabcorp and Tatts, as the Tribunal was being seen as a viable alternative to the ACCC. 

Further, while the option of seeking a review by the Tribunal is available, the timeframe for doing is likely to make review by the Tribunal unviable in a number of commercial situations, but especially where there are competing bids on the table.

In potentially controversial mergers, parties seeking authorisation should consider preparing and presenting information to the ACCC with the potential for a Tribunal review in mind, including the preparation of witness statements, economic reports and the presentation of any data that supports the parties’ case.  The Tribunal has a strong track record of authorising mergers on public benefits grounds where the ACCC has opposed on competition grounds.  Whether the ACCC will be as willing to authorise mergers remains to be seen.

Options for merger clearance under new regime, at a glance

 

Cartels & Joint Ventures

  • The geographic reach of the cartel provisions has been narrowed to cartel conduct that occurs in trade or commerce within Australia or between Australia and places outside Australia.
  • The scope for businesses to rely on the joint venture exception to cartel conduct contained in s 44ZZRO has been expanded: 
    • joint ventures contained in an arrangement or understanding (not simply contracts) are included in the exception; and
    • joint ventures for the acquisition of goods or services (not only for production and/or supply) are included in the exception.
  • However, there are also some additional requirements for businesses to qualify for the joint venture exception:
    • the joint venture must not be carried on for the purpose of substantially lessening competition;
    • the cartel provision must be for the purposes of a joint venture, and
    • the cartel provision must be reasonably necessary for undertaking the joint venture

What this means

It’s important to remember the additional criteria for the joint venture exception, especially that the cartel provision must be reasonably necessary for undertaking the joint venture.

Businesses should also consider the purpose of the joint venture to ensure that it is not being carried on for the purpose of substantially lessening competition.

Third line forcing (s 47)

Third line forcing will no longer be prohibited per se but will be subject to a substantial lessening of competition test. 

This will bring Australian law into line with comparable international jurisdictions and other provisions of the CCA. 

At the moment the ACCC receives hundreds of notifications of third line forcing conduct each year and has only ever taken action against a handful, so this change will relieve a significant administrative burden on both business and the ACCC.

What this means

Businesses will no longer have to notify all third line forcing conduct.  Instead, they will need to consider how it will impact competition.

Resale Price Maintenance (s 48)

  • Resale price maintenance will remain prohibited on a per se basis, but will now be able to be notified to the ACCC as an alternative to seeking authorisation from the ACCC. 
  • Notified conduct will be immunised from prosecution unless the ACCC overturns the notification within 60 days after notification.  This is significantly longer than the 14 days that currently applies to third line forcing notifications.
  • There is an exemption from the resale price maintenance prohibition for conduct between related bodies corporate.

What this means

The process for obtaining immunisation for resale price maintenance has been streamlined and no longer requires the ACCC to provide authorisation, but there will still be a delay as businesses will need to wait 60 days from notification.

Authorisations process (s 88)

  • The amendments provide for a simplified authorisation process.
  • Section 88 will be the single authorisation provision for all types of authorisations and parties will only need to lodge a single form and pay one lodgement fee for all conduct.
  • The ACCC’s power to grant authorisations now extends to misuse of market power (s 46) and mergers (s 50).
  • The ACCC will now be able to authorise conduct if it is satisfied that it:
    • will not (or is not likely to) substantially lessen competition; or
    • is likely to result in a net public benefit (ie public benefits that outweigh any lessening of competition).
  • The ACCC will have a new class exemptions power, allowing it to exempt conduct or categories of conduct if it is unlikely to raise competition concerns or is likely to generate net public benefits.

What this means

The amendments create efficiencies in terms of the process for applying for authorisations and seeking minor variations, reducing the complexity of form and fee arrangements and potentially reducing the onerousness of the information that parties need to provide to the ACCC.

The introduction of the alternative test of ‘no SLC’ or ‘net public benefits’ will provide more flexibility and reduce the burden of authorisation applications in circumstances where conduct would technically contravene the cartel provisions but does not have an anti-competitive effect.

Strategically, it is difficult to see circumstances where parties would be willing to seek authorisation for conduct that falls within s 46, especially if this involves having to make submissions that the party has market power.  It will be interesting to see whether this provision is ultimately used. 

The broadening of authorisations provisions to mergers provides merger parties has the potential to provide merger parties with more choices of clearance options and for some mergers will provide an attractive alternative to informal merger clearance (see above).

Access to Services – Declaration Criteria

  • Amended declaration criteria for access to services are contained in a new section (44CA):
    • the new criterion (a) provides that access (or increased access) to the service, on reasonable terms and conditions, as a result of declaration must promote a material increase in competition in another market, other than the market for the service. This will now require a comparison of competition with access versus competition without access on reasonable terms and conditions following declaration.
    • the new criterion (b) provides that the facility that is used (or will be used) to provide the service needs to meet the total foreseeable demand in the market, over the period for which the service would be declared and at the least cost compared to 2 or more facilities.  If the facility is currently at capacity it may still be declared if the capacity could reasonably be extended.  The previous criterion was that the facility was uneconomic to duplicate.
    • criterion (c) remains the same; and
    • the new criterion (d) provides that access (or increased access) to the service as a result of declaration must promote the public interest (taking into account investment incentives and compliance and administration costs).  The previous criterion was that it would not be contrary to the public interest.
  • The criterion relating to existing access regimes has been replaced with a threshold clause stating that the decision-maker does not need to consider an application or recommendation if the regime is subject to an effective access regime.

What this means

The changes to the access regime are significant, especially from an access seeker’s perspective.

By including the requirements that access as a result of declaration will promote a material increase in competition in another market, the amendments have raised the bar for obtaining declaration.  There is also a risk that the amendments will be viewed as reintroducing a simplistic test of comparing the effect of declaration with the status quo (i.e., the current commercial or regulatory arrangements).

The public interest criterion change is also more burdensome for access seekers to satisfy.

Our Experts
-
Partner
+61 2 9263 4014
+61 402 257 604
-
Partner
+61 2 9263 4362
+61 411 314 505
-
Partner
+61 2 9263 4006
+61 411 137 321
CC
Partner
+61 2 9263 4019
+61 417 269 992
-
Partner
+61 2 9263 4432
-
Partner
+61 2 9263 4187
+61 410 540 653
-
Partner
+61 3 8656 3312
+61 459 100 211
Consultant
+61 2 9263 4233
+61 410 540 592
Image of Jennifer Barron
Partner
+61 2 9263 4063
+61 409 390 634
gp
Special Counsel
+61 2 9263 4388
+61 459 400 019
lk
Special Counsel
+61 2 9263 4371
+61 458 121 100

Categories

Areas of Expertise

Share This

AddThis: