The Senate is currently considering changes to the misuse of market power provisions in section 46 of the Competition and Consumer Act 2010 (Cth).

The Competition and Consumer Amendment (Misuse of Market Power) Bill was introduced into Parliament in 2016 and was recently passed by the House of Representatives. The bill seeks to implement changes recommended by the Harper Review in 2015.

What would change?

The amendments are intended to strengthen the prohibition on misuse of market power by focusing on the competitive process as a whole, as opposed to purely the impact of a corporation’s conduct on competitors.

Currently, the prohibition on misuse of market power has three essential elements:

  1. a corporation with a substantial degree of power in a market;
  2. takes advantage of that power;
  3. for the purpose of:
    1. eliminating or substantially damaging a competitor;
    2. preventing the entry of a competitor; or
    3. deterring or preventing competitive conduct.

The proposed amendments make significant changes to elements (b) and (c) of the current formulation. Under the proposed new law, the elements would be:

  1. a corporation with a substantial degree of power in a market;
  2. engages in conduct which has the purpose, effect or likely effect of substantially lessening competition.

The three key aspects to the proposed amendments are discussed below.

1. Removal of the ‘take advantage’ test

Currently, the ‘take advantage’ test asks whether a corporation without a substantial degree of market power would have engaged in the same conduct. If the answer is yes, the conduct does not breach section 46.

The proposed bill seeks to remove the ‘take advantage’ test to address concerns that safe harbours for anti-competitive behaviours were being created on the basis that smaller corporations would engage in the same conduct – regardless that the ramifications of the actions of a corporation with market power would be completely disproportionate to those of a smaller corporation.

If the bill is introduced, corporations will be restricted from arguing that anti-competitive behaviour is the industry standard, or merely a smart business decision.

2. Introduction of an effects test

Under the current law, conduct is only caught by section 46 if it is purposeful. This requires proof that the corporation intended to bring about a certain result. Intention is a subjective enquiry, although it can be determined by inference. This subjectivity limited the scope of finding purposeful behaviour which has been difficult for the ACCC in the courts.

The amendments expand the scope of conduct by introducing an ‘effects test’. Now, conduct will be caught not just if it has a purpose, but if it has an effect or likely effect. This will remove subjectivity and businesses will face liability for conduct which has the effect or likely effect of substantially lessening competition, even if they do not intend to be anti-competitive.

3. Introduction of the ‘substantially lessening competition’ test

Currently, conduct is prohibited which has one of three specified purposes, being the elimination or substantial damaging of a competitor, the prevention of entry of new competitors, or the deterring or prevention of competitive conduct.

The proposed amendments sweep these categories aside and instead introduce a ‘substantially lessening competition’ test. Under this test, any conduct of any kind which has the purpose, effect or likely effect of substantially lessening competition is prohibited.

If the bill is enacted, businesses will have to turn their minds to the question of what effect their conduct will have on the competitive process, and not just their competitors. However, the change may not prove too drastic, given that firstly, considering the impact on competitors is necessarily part of the impact on the competitive process, and secondly, businesses are already required to consider the competitive process under other provisions of the Competition and Consumer Act.

Next steps

The Explanatory Memorandum to the bill makes it clear that the proposed changes are not designed to change the way corporations with market power make decisions or engage in competitive conduct. Rather, these amendments are intended to make the provision effective for its original purpose, that is, to prevent corporations from engaging in unilateral conduct that harms the competitive process.

Despite this, it is clear the provision will now catch a broader range of conduct than it previously did. If the bill is enacted, businesses will need to give closer consideration to the possible effects of their conduct on competition, regardless of intention, in order not to fall foul of the prohibition.

The proposed amendments have been hotly contested by Parliament and it remains to be seen as to whether the bill will be passed. The bill was before the Senate on 29 March 2017 for a second reading speech, which has been adjourned and is expected to resume at the next sitting.