Last week, the Government released (for public comment) proposed draft legislation relating to the most significant amendments to Australian competition law in the last 20 years.
At the same time, the ACCC released draft guidelines as to how it would interpret two of the most important proposed amendments – the “effects” test under the misuse of market power prohibition and the new “concerted practices” prohibition.
Below is a summary of the key provisions. We anticipate that they will not come into operation until mid-2017. Submissions in response to the draft legislation and ACCC draft guidelines are due by 30 September and 3 October respectively.
1. New “effects” test under section 46
The misuse of market power prohibition will make it illegal for a company with substantial market power to engage in conduct that has the purpose or effect of substantially lessening competition in a market. Currently, such companies can only contravene this provision if they take advantage of their market power for a proscribed anti-competitive purpose. In order to distinguish “pro-competitive” conduct and “anti-competitive” misuse of market power, the court will be required to take into account whether a company’s conduct enhances efficiency, innovation and competition or whether it prevents, restricts or deters competitive conduct. Potential contravening conduct will also be able to be authorised by the ACCC if the public benefits of the conduct outweigh the public detriments – currently, this is not the case.
The changes are unlikely to significantly affect the conduct of large business other than requiring more detailed legal and economic advice on key competitive, strategic and operational decisions that could materially impact competition (e.g. refusing supply, bundling conduct, exclusivity arrangements, limiting access to key goods/services or terminating important agreements). For smaller businesses, the change may provide a stronger avenue to complain to the ACCC about the conduct of a large business as the ACCC will keen to test the new law. Please see our more detailed analysis of this proposed amendment here.
2. Dealings with competitors – concerted practices and cartels
A new “concerted practices” prohibition will be introduced to address concerted practices that have the purpose or effect of substantially lessening competition in a market. There is no definition of what will constitute a concerted practice but the usual exceptions will apply (i.e. authorisation, related bodies). The ACCC’s guidelines state that a concerted practice “is a form of coordination between competing businesses by which, without them having entered a contract, arrangement or understanding, practical cooperation between them is substituted for the risks of competition”. There is also substantial international jurisprudence about what types of conduct are likely to amount to a concerted practice. In summary, regular contact with competitors which results in coordinated behaviour that in turn lessens competition would be likely to fall within the prohibition. This conduct may be evidenced by regular information exchanges or meetings with competitors pursuant to which prices, intentions or conduct are disclosed. The matching of a rival’s publicly advertised pricing without any coordinated practice occurring is unlikely to constitute a concerted practice.
There are no major changes to the cartel provisions other than to clarify that cartel conduct must involve actual or likely competitors (not “potential” competitors) and joint ventures (for production, supply, acquisition or marketing) and vertical supply agreements will only be problematic if they substantially lessen competition.
The concerted practices prohibition will be a major broadening of the types of conduct between competitors that will be caught by Australian competition law. Companies in concentrated industries where price matching and parallel conduct is common will be at greater risk. Similarly, information sharing between competitors (either directly or via third party associations or through customer/supplier relationships) will be at greater risk. Importantly, genuine joint ventures and vertical supply agreements will continue to be subject to a competition test.
3. Mergers and acquisitions
There will be two ways to “get your deal through” – 1) the existing informal clearance process under the substantial lessening of competition test; and 2) a new formal authorisation process before the ACCC (with a right of review by the Australian Competition Tribunal) under a substantial lessening of competition test or a net public benefit test.
If you need ACCC clearance for your merger, you will need to assess the competitive effects and public benefits of the transaction to determine whether prospects of ACCC approval are greater under informal clearance or authorisation. This is likely to result in more merger authorisation applications because companies will have the ability to satisfy one of two tests, there are strict timelines for decisions and there is the benefit of the review by the Tribunal.
4. Third line forcing – no more notifications
Third line forcing will be subject to a competition test rather than being outright illegal.
There will no longer be any need to lodge a notification for third line forcing conduct. Rather, third line forcing will require an assessment of whether such conduct has the purpose or effect of substantially lessening competition in a market. If it does, a notification for immunity will still be able to be lodged.
5. Resale Price Maintenance – a new notification regime
RPM will continue to be automatically illegal but you will be able to “notify” the ACCC about RPM and obtain immunity if the public benefits outweigh the anti-competitive detriments. There will also be an exemption for related parties.
Parties that wish to engage in RPM will be able to do so if they can demonstrate that the public benefits of such conduct outweigh the anti-competitive detriments and they lodge a notification with the ACCC.
6. Secondary boycotts – higher penalties
The maximum penalty for secondary boycotts will increase from $750,000 to $10 million.
This amendment will result in increased investigative and enforcement action by the ACCC in relation to secondary boycott behaviour.
7. New block exemption available
The ACCC will be able to exempt certain types of conduct (e.g. efficiency enhancing arrangements such as shipping conference agreements and IP licences) from competition law on the basis they are unlikely to result in competition concerns or will generate a net public benefit.
If your business or the industry in which you operate regularly engages in conduct that may contravene competition law (but there is no material effect on competition or there are net public benefits), you may wish to consider applying to the ACCC for a block exemption.
8. ACCC section 155 investigations
A new “reasonable search” defence will be introduced in relation to a failure or non-compliance to produce documents required for an ACCC investigation. Whether a party has satisfied the defence will depend upon the nature and complexity of the matter, the number of documents involved, the ease and cost of retrieving documents and the significance of the documents. In addition to this amendment, the maximum penalty for non-compliance with a section 155 investigation will be materially increased from $18,000 and 1 year jail to $90,000 and 2 years in jail (current penalty rates).
The defence seeks to provide some relief to companies that have many thousands of documents stored digitally that may be difficult to retrieve. However, given the increase in penalties for non-compliance, companies should, from a very early stage of the investigation process, identify the location and ability to retrieve all documents sought and communicate these issues with the ACCC immediately.
9. Access to nationally significant infrastructure – a win for access seekers
There will be four key changes – the declaration criteria will be amended, the Minister will be deemed to agree with the NCC if he or she does not make a decision, the NCC can seek revocation of a certified regime and the ACCC will be given express power to order an infrastructure owner to extend or expand a facility in an arbitration.
In relation to the declaration criteria, criterion (a) will be amended to make it clear that the criterion will be met if the effect of “declaration” promotes a material increase in competition rather than access (or increased access itself). This is in direct contrast to the interpretation of criterion (a) since 2006 including the current application by Glencore for access to the Port of Newcastle. Criterion (b) will be changed back to a “natural monopoly” test following the High Court’s interpretation of criterion (b) as a “private profitability” test and criterion (f) will require a positive consideration of whether access would promote the public interest.
These amendments will make it easier for potential access seekers to obtain access to nationally significant infrastructure. The declaration criteria will be able to be satisfied more easily than was previously the case and the threat of the ACCC ordering an infrastructure owner to extend or expand its facilities is likely to see an increase in negotiated access outcomes. Infrastructure owners that are subject to a certified state based access regime will come under increased scrutiny by the NCC to ensure those regimes are operating effectively – if they are not, the NCC can seek to revoke certification (opening the door for declaration under Part IIIA).