This week, the Commonwealth Government came a step closer to implementing major changes to Australian competition law recommended by the Harper Review.
The Government has released an exposure draft of the Competition and Consumer Amendment (Competition Policy Review) Bill 2016 (the Exposure Draft) for public comment (accessible here). The proposed amendments to the Competition and Consumer Act 2010 (Cth) (the Act), follow prolonged review and consultation on the recommendations of the Harper Review handed down in March 2015.
Although much of the public debate has focused on changes to the prohibition on misuse of market power, and the introduction of a “concerted practices” prohibition, the Exposure Draft also contains a range of other significant reforms.
The proposed amendments are broadly in keeping with the Government’s November 2015 response to the Harper Review. To coincide with the release of the Exposure Draft, the ACCC has published draft frameworks regarding its proposed approach to enforcement of the new misuse of market power and concerted practices provisions (accessible here). These follow specific recommendations of the Harper Review regarding the need for ACCC guidance in these areas.
Our analysis of the key proposed changes and ACCC guidance is below.
1. Misuse of market power
The Government is introducing the long foreshadowed ‘effects test’ into the prohibition on the misuse of market power in section 46 of the Act. Under this change, any conduct by a corporation with substantial market power that has the purpose, effect or likely effect of substantially lessening competition, would be prohibited. The current “proscribed purpose” threshold and “take advantage” limb, would be repealed.
The Government has also adopted the Harper Review’s recommendation to include legislative directions to the Court to consider certain factors when determining whether conduct has the requisite purpose or effect. In summary, these factors require the Court to consider whether the conduct has:
- any pro-competitive characteristics (e.g. price competitiveness, or efficiency or quality improvements); and
- any anti-competitive characteristics (e.g. preventing or deterring the potential for competitive conduct or new market entry).
For the first time, corporations will also be able to seek exemption from the new section 46 through the ACCC authorisation process (if it satisfies a “net public benefit” test). In addition, the current predatory pricing prohibition will be repealed; although below cost pricing will continue to be susceptible to challenge under section 46 of the Act.
To coincide with the release of the Exposure Draft, the ACCC has released a Framework for misuse of market power guidelines (MMP Framework). The MMP Framework outlines the ACCC’s approach to interpretation and enforcement of the proposed amendments to section 46, including examples of the types of conduct it views are likely to breach the new prohibition. The MPP Framework (alongside that released in relation to concerted practices, discussed below) will form the basis for future ACCC guidance.
Beyond stating the objectives of the amended provision, namely to safeguard competitive markets and not to protect individual competitors, the MMP Framework outlines the ACCC’s interpretation of the elements of the new prohibition. For instance, there is discussion of the concepts of “market”, “substantial degree of power in a market” and “substantially lessening competition”. In this regard, the MPP Framework draws on well-established meanings attributed to these elements.
These are accompanied by illustration of the types of conduct that in the view of the ACCC are either likely or unlikely to contravene the new provision. These include “bundling/tying”, “land banking”, and “predatory pricing”. The examples provided are highly simplified, and provide few insights into how the ACCC might approach the new section 46 in more complex or marginal cases.
2. Concerted practices
The Exposure Draft introduces the concept of “concerted practice” to the Act, borrowed from EU law. The concept effectively extends the prohibition in section 45 in the Act that applies to contracts, arrangements or understandings that have a purpose, effect or likely effect of substantially lessening competition. It does so by adding anti-competitive conduct that is “concerted” but falls short of an arrangement or understanding. However, “concerted practice” will be undefined.
The price signalling provisions of the Act will be repealed, as the Government expects this type of conduct will now be captured by a broadened, general prohibition contained in section 45.
The ACCC has also released in draft its Framework for concerted practices guidelines (CP Framework), as was recommended as part of the Harper Review. In it, the ACCC outlines its approach to the proposed concerted practices prohibition, adopting the European and British definition as conduct that “is a form of coordination between competing business by which… practical cooperation between them is substituted for the risks of competition.”
The CP Framework also includes several examples of conduct that the ACCC considers a concerted practice. Generally, the examples feature a private exchange or disclosure of information between parties that leads to co-operative behaviour (as opposed to truly independent action).
3. Cartel conduct
The Act prohibits various forms of cartel conduct, for example price-fixing, bid-rigging, market-sharing and restrictions on output. The Exposure Draft seeks to amend the Act’s cartel laws, by broadening the exemption that currently applies to provisions in contracts that are for the purposes of a joint venture. In relation to joint ventures, the changes would extend the exemptions to:
- include provisions in arrangements and understandings, not just contracts, and where they relate to the acquisition of goods or services (in addition to the production or supply of goods or services); and
- include provisions that are reasonably necessary for undertaking a joint venture (currently the exemption is only for cartel provisions that are for the purposes of that joint venture).
In addition to these changes, the Act’s cartel laws would also be amended by:
- restricting the cartel laws to conduct occurring in trade or commerce in Australia, or between Australia and places outside Australia;
- repealing the specific definition of “likely” in the cartel laws (so that likely is interpreted as “more probable than not”, rather than “a possibility not remote”). This is intended to raise the threshold for application, so that the cartel laws do not inadvertently capture corporations that are not in competition with each other; and
- replacing the current exception for exclusive dealing with a broader range of exemptions, where the supply or acquisition of goods or services is conditional on another obligation (known as vertical restrictions).
The broadened exception for vertical restrictions would mean that conduct such as third line forcing would now also be exempt from the cartel laws. These types of conduct would remain subject to the anti-competitive conduct provisions elsewhere in the Act.
In addition, the Exposure Draft proposes to repeal the separate prohibition on exclusionary provisions (or “primary boycotts”), contained in section 45(2) of the Act. The definition of exclusionary provisions in section 4D of the Act would also be repealed. To address any resulting gap in the law, the Government proposes to extend the prohibition on cartel conduct to provisions of contracts, arrangements or understandings that seek to prevent, restrict or limit the acquisition (or likely acquisition) of goods or services.
The separate formal merger clearance and authorisation provisions contained in the Act are to be replaced with a new consolidated provision for all authorisations under section 88 of the Act (we discuss this further with respect to other authorisations below).
This will make the ACCC the first instance decision-maker for all authorisations, including for mergers. Parties will no longer be able to seek a merger authorisation directly from the Australian Competition Tribunal (the Tribunal). Decisions of the ACCC will be reviewable by the Tribunal on application from the parties, but only insofar as they relate to the ACCC’s reasons for its determination (and not as a full re-hearing of any matter). This is intended to ensure that all matters relevant to the merger authorisation are put to the ACCC in the first instance.
5. Third line forcing
The Government has followed the Harper Review’s recommendation to remove the automatic (or “per se”) prohibition currently applied to third line forcing. Third line forcing involves the supply of goods or services on condition that the purchaser also acquires goods or services from an unrelated party.
In place of the per se prohibition on third line forcing, the Exposure Draft will apply a competition test, so that third line forcing will be unlawful where it has the purpose, effect or likely effect of substantially lessening competition. This would align the enforcement of third line forcing conduct with other types of exclusive dealing under the Act.
6. RPM notifications
The Government proposes to retain the per se prohibition on supplier restraints on resale prices, known as resale price maintenance (RPM). This is in keeping with its earlier support for the Harper Review’s recommendation. However, it has also proposed changes that:
- amend the meaning of RPM so that conduct between related companies is now exempt; and
- bring RPM within the notification process in section 93(1) of the Act. This seeks to ease the burden on corporations seeking immunity for RPM.
Under the notification process, a corporation can seek immunity by giving notice of the proposed conduct to the ACCC. The proposed notification process for RPM would be similar to that currently in place for third line forcing, in that exemption would only be granted after a prescribed period has passed. Unlike the 14 day waiting period for third line forcing however, the proposed ‘waiting’ period will be 60 days from the day when valid notice is given (subject to any changes in this time period made under the Competition and Consumer Regulations 2010 (Cth)).
Also, as RPM remains prohibited per se, the test for RPM notifications will not look to whether the conduct would have the effect, or likely effect, of substantially lessening competition. Instead it will only apply a net public benefit test (granting immunity where the likely public benefit would outweigh the likely detriment flowing from the conduct).
As part of the amendments, the ACCC may also impose conditions on the applicant as part of the notification process. The ACCC has not clarified the types of conditions it will apply, although the approach in the 2014 Tooltechnic Systems (Aust) Pty Ltd authorisation may provide some insight. In that matter, the ACCC granted authorisation on the condition that it received regular sales information to allow it to monitor any impact of the RPM.
The National Access Regime contained in Part IIIA of the Act (Access Regime) is to be amended, particularly with respect to the criteria that form the basis for a declaration for access to a service. In this regard the Government has opted to follow recommendations of the 2013 Productivity Commission Report on the Access Regime, rather than those of the Harper Review.
The declaration criteria previously contained in sections 44G and 44H of the Act are to be consolidated into a new section (proposed section 44CA). If the Exposure Draft is passed, they will require the Minister to be satisfied that:
- access, or increased access, on reasonable terms and conditions, following a declaration would promote a material increase in competition;
- the service to be accessed could meet the total foreseeable demand in the market at the least cost (changed from the current criterion “that it would be uneconomical for anyone to develop another facility”, interpreted by the High Court as a “private profitability” test);
- the facility that provides the service is of national significance (this is unchanged from the current criterion); and
- access, or increased access, on reasonable terms and conditions, would promote the public interest (as opposed to consideration of whether it is contrary to the public interest).
Overall, the changes are likely to lower the bar for a declaration.
The Minister will be taken to have made the declaration if they have not published their decision within 60 days of receiving a recommendation from the National Competition Council. This reverses the current position that a declaration is deemed not to have been made in the absence of a published decision.
Also included in the Exposure Draft’s provisions is a power for the Minister to revoke certification of an “effective access regime”. The effective access regime operates as a way for State or Territory Governments (on the recommendation of the National Competition Council), to seek immunity for a particular service from a declaration for access. Under the Exposure Draft’s provisions, the Commonwealth Minister will be able to revoke this immunity, after a recommendation by the National Competition Council.
8. Authorisation by the ACCC
The Exposure Draft includes additional measures aimed at simplifying the authorisation process (beyond those discussed in relation to mergers, above). The proposed changes include:
simplifying the matters the ACCC must be satisfied of in granting an authorisation, to:
- whether the conduct in question would have the effect, or likely effect, of substantially lessening competition; or
- whether that conduct would result in, or be likely to result in, public benefits that outweigh any detriment resulting from the conduct.
- providing the ACCC with “class exemption” powers, allowing it to exempt particular types or categories of conduct, provided that conduct is unlikely to substantially lessen competition or is likely to generate a net public benefit;
- allow later parties to join a collective bargaining process after it has commenced; and
- allow the ACCC to impose conditions on a collective bargaining process.
The ACCC has not yet published any guidance regarding the kinds of conduct it considers may warrant a class exemption.
9. Conduct of ACCC investigations
There are proposed amendments to the powers of the ACCC to conduct investigations under section 155 of the Act. These follow the Harper Review’s comments regarding the high cost of compliance with a section 155 notice to produce documents, given it can require extensive searching of large volumes of digital data.
Recognising this, the Government has included in the Exposure Draft a “reasonable search” defence. This would mean that, when served with a notice under section 155 to produce documents, a party will not be guilty of an offence if they are not aware of the documents after undertaking a reasonable search for them.
The Exposure Draft also includes further powers for the ACCC to investigate a party’s compliance with an undertaking given to it under section 87B of the Act (referred to as “court-enforceable undertakings”). Currently the ACCC is not able to issue a notice under section 155 to compel production of documents to investigate an alleged breach of such an undertaking. The penalty for non-compliance with a notice issued under section 155 is also increased to $180,000 or two years’ imprisonment.
10. Next steps
Whilst the Exposure Draft includes some measures to simplify the Act, there remain others recommended by the Harper Review that have been left out. These include the recommended repeal of the prohibition on exclusive dealing, and further simplification of the cartel conduct provisions. It remains to be seen whether the Government will seek to adopt these other measures in the near future.
Consultation on the Exposure Draft is now open and submissions can be made until 30 September 2016. Submissions can be made through an online survey (available here) facilitated by the Commonwealth Treasury (this includes an opportunity to upload a submission). Alternatively, submissions can still be made by emailing or posting them to Commonwealth Treasury.
The ACCC is also accepting submissions regarding its draft guidance. These can be made until 3 October 2016 by email to the details included on its website.