The high-profile Epic v Apple litigation is the latest in a string of applications and settlements by private litigants under section 46 (misuse of market power). This suggests that private litigation, and not the ACCC, may be seeing more success under the post-Harper ‘effects test’.

Key Take Outs

  • In November 2017, the misuse of market power provisions of the Competition and Consumer Act 2010 (CCA) were substantially amended as part of the suite of reforms following recommendations by the Harper Panel, Competition Policy Review: Final Report (March 2015) (Harper Review) as enacted by the Competition and Consumer Amendment (Misuse of Market Power) Act 2017 (Cth). The amended test removes the previous requirement to demonstrate that a firm with market power had “taken advantage” of that power and, at the same time, introduced an “effects test” under which it is no longer necessary to establish an anti-competitive or predatory purpose to make out a claim under section 46.
  • While these changes were championed by the ACCC, the regulator has brought one case to trial under the new provisions against Tasmanian Ports Corporation Pty Ltd in the Federal Court of Australia (file number: VID1328/2019). However, over the same period, there have been a string of private litigants with claims commenced..
  • The growth in litigation will be encouraged by very early signs that section 46 is proving effective. In cases over the last 18 months, while no final judgments have been made, there have been interim remedies ordered (injunctions against both Facebook and Google) and evidence of at least two commercial settlements. Time will tell is this early success results in final successful court outcomes for applicants.
  • Nonetheless, private litigation under section 46 is not for the faint-hearted.
  • There remain evidentiary and interpretative challenges for litigants and the law will benefit from greater direction from the Courts once cases reach contested hearings. The challenges include:
    • Unlike ACCC prosecution (which typically occurs after the event), private litigation is generally brought before or during the course of conduct and before any competitive or other commercial harm is fully realised. This means that the fundamental aspects of the factual (and counterfactual) can move during litigation and may be influenced by the parties themselves. This is similar to challenges commonly experienced by the ACCC in section 50 merger litigation.
    • Questions remain about the extent to which the approach to drafting section 46 has left it limited in its ability to respond to issues that do not arise from vertical integration and whether the task of establishing vertical market relationships or leveraging places too much focus on technical questions of market definition, rather than substantive conduct.
    • Where conduct involves pricing (which it commonly does in the context of private s.46 litigation), the legal remedies available to private litigants to respond to monopoly pricing or price squeeze complaints remain under-developed in Australian courts.

This update offers a brief overview of the privately litigated section 46 cases to date and provides some practical observations on lessons for litigants considering bringing, or responding to, private claims under the new provisions in the year ahead.

A recap: what happened to the section 46 test?

As part of the overhaul of the section 46 test following the Harper Review, a number of substantial changes were made to the test:

  • First, section 46 was reframed to remove any need to establish a clear link between conduct and market power (i.e. it had previously been necessary to show that conduct resulted from a party “taking advantage” of its market power – see Melway Publishing Pty Ltd v Robert Hicks [2001] HCA 13).
  • Second, the focus of the provision was framed broadly on any “conduct” by a firm with substantial market power.
  • Third, a “substantial lessening of competition” test was introduced that removed the need to establish a predatory or anti-competitive purpose. This “effects test” therefore provides for a contravention in the event of conduct that has either an anti-competitive purpose or effect.
  • Fourth, and unlike some other antitrust regimes, the amendments do not include any express defence for legitimate or rational business decisions and do not adopt the recommendation of the Harper Review to include whether there were pro-competitive effects from the conduct as a mandatory factor to be considered by a Court.

Taken together, the changes therefore capture a much broader range of conduct and establish a lower evidentiary threshold, allowing scope to challenge unilateral anti-competitive conduct even in circumstances where the conduct might be said to have some legitimate business justification or might have been able to be undertaken by a firm without market power.

It is perhaps little surprise, then, that we have seen an up-tick in private litigants bringing cases under the remodelled test.

The section 46 cases to date under the new test

While it remains relatively early days, there a couple of interesting things to note about the cases brought under the new test to date:

  • all but one of the cases brought under the reframed section 46 have involved private litigants;
  • the cases themselves have involved claims in predictable markets – involving predominantly sea ports (or access to associated port infrastructure) and digital platforms; and
  • the conduct at the centre of the cases is also familiar, focussing on refusal of access and anti-competitive price discrimination or price squeezes.

While no case has yet proceeded to judgment, there are arguably some early signs of success for applicants – with a couple of cases settling and interim injunctions being granted.

A brief overview of the cases to date is below (noting that for private litigation there is limited publicly available information available):

B&K Holdings (Qld) Pty Ltd v Garmin Australasia Pty Ltd (2019) 134 ACSR 404 (Application filed February 2018)

Facts

In this case, B&K Holdings and Garmin were engaged in a business relationship whereby B&K Holdings was the exclusive Australian distributor of Garmin’s GPS-enhanced bike computers and watches between 2009 and 2017. B&K Holdings alleged that Garmin had breached section 46 by:

  • a price squeeze in which Garmin reduced its retail price to a price lower than the wholesale price offered to B&K Holdings; and
  • a refusal to supply – based on an alleged refusal by Garmin to continue to supply B&K Holdings with products.

Outcome

Garmin sought summary judgment of the claims in the Federal Court of Australia, but its application was dismissed.

In dismissing the application, Derrington J stated at [52] “it does not appear clear that B&K has no reasonable prospects of establishing that the counterfactual position would be it being able to compete in the market”.

The matter settled in late 2019.

Unlockd Ltd v Google Asia Pacific Pte Ltd [2018] FCA 826 (Application filed May 2018)

Facts

Unlockd was the developer of “Unlockd Rewards”, an app which provided targeted advertising to customers in exchange for reward points. Unlockd alleged that Google had misused its market power when it threatened to block access to Unlockd Rewards from its app stores.

Outcome

Unlockd successfully obtained an interim injunction against Google, however, it ultimately discontinued the proceedings in October 2018 following its voluntary administration.

Dialogue Consulting Pty Ltd v Instagram, Inc [2020] FCA 1846 (Application filed in April 2019)

Facts

Dialogue Consulting, a start up that was a first mover in offering social media content scheduling, brought proceedings against Facebook (and Instagram) after they deactivated Dialogue Consulting’s access to their platforms for alleged breaches of the platforms’ guidelines.

Dialogue Consulting’s “refusal of access” claim was based on an allegation that Instagram was doing so in order to push users towards Instagram’s own products.

Outcome

Dialogue Consulting was awarded an interim injunction against Facebook and Instagram in April 2019 which will remain in place until further court order. In December 2020, Instagram sought a stay of the proceedings as they related to certain claims made by Dialogue Consulting, but not as they related to the section 46 claim; the application was dismissed. The matter remains active.

Qube Ports Pty Ltd v Port of Newcastle Operations Pty Limited – file number: NSD1905/2019 (Application filed in November 2019)

Facts

Qube, a bulk stevedore, brought a claim against the operator of the Port of Newcastle alleging that it had sought to force Qube to use the Port of Newcastle’s equipment for all its bulk stevedoring operations and, in the process, had refused access to the bulk stevedoring berth for Qube’s own equipment.

Outcome

The matter settled in November 2020 and the proceedings have been discontinued.

ACCC v Tasmanian Ports Corporation Pty Ltd – file number: VID1328/2019 (Application filed in December 2019)

Facts

The ACCC issued proceedings against TasPorts in relation to the attempted entry into the market for the supply of marine services at Tasmanian ports by Engage Marine after Engage Marine won a contract with a TasPorts customer.

The ACCC alleged that TasPorts:

  • imposed a new charge on the customer;
  • offered to reduce that charge if the customer agreed to enter into a contract with TasPorts instead of Engage Marine;
  • imposed a new charge on Engage Marine;
  • refused to provide Engage Marine long term berth access; and
  • refused to include Engage Marine on its shipping schedules.

Outcome

The matter is listed for hearing in April / May 2021.

Epic Games, Inc v Apple Inc – file number: NSW1236/2020 (Application filed in November 2020)

Facts

Epic Games, the developer of the popular game Fortnite, issued proceedings against Apple under section 46.

Epic Games allege that Apple has misused its market power by forcing developers to use – and pay for – Apple’s App Store (to distribute software to iOS device users) and Apple’s payment platform (for customers making in-app purchases) in circumstances where Apple takes a 30% cut on all payments made through its platform and Apple iPhones make up over 50% of mobile devices in Australia.

Outcome

The matter is listed for an interlocutory hearing in March 2021.

Green shoots or false starts?

While no cases under the new section 46 have yet reached trial, the early signs are promising for private litigants:

  1. In at least two cases (Qube and B&K Holdings), litigation has been resolved on the basis of commercial settlements. In the latter case, the settlement followed comments from the judge that suggested the applicant had reasonable prospects of establishing the counterfactual (B&K Holdings (Qld) Pty Ltd v Garmin Australasia Pty Ltd (2019) 134 ACSR 404 at [52]).
  2. The Courts have been prepared to accept that litigants have a prima facie case in at least three instances:
    1. In B&K Holdings, an attempt to have the claim struck out was rejected.
    2. In both Unlockd and Dialogue Consulting, the Court found sufficient prospects to support the grant of interim injunctive relief.

At the same time, the cases to date highlight the real and practical challenges often faced by private litigants in section 46 matters. Most notably, these cases – involving refusal of access to key inputs or platforms – often give rise to existential threats for smaller or less well-positioned parties, and this can mean commercial harm occurs quickly. In Unlockd, this resulted in liquidation overtaking the applicant before the matter came to trial. The costs and risks associated with litigation, in these circumstances, can also make undertakings as to damages challenging when seeking interim injunctive relief, which further compounds the challenge of having a matter resolved quickly enough to protect a business from conduct.

Several other legal and practical challenges remain:

(a) Private section 46 litigation often occurs in “real time” during negotiations and an applicant therefore needs to deal with a shifting counterfactual

ACCC proceedings under Part IV of the CCA, including prosecutions under section 46, typically focus on past conduct. This means that evidence of any commercial damage is historical and concrete.

The clearest exception is section 50 cases, where the ACCC has found litigation difficult precisely because it faces the challenge of establishing a future and hypothetical “counter factual”, often based on market facts that shift under the ACCC’s case or which can be subject to influence by the parties to the litigation.

A similar challenge faces private litigants in section 46 matters. Private litigants understandably do not wait for the competitive damage to be inflicted, and market fallout to be complete, before taking steps to bring a claim. This often means that a litigant must commence proceedings at an earlier stage, perhaps while commercial negotiations are continuing, or when any future competitive effects and damage is not yet clear or crystallised. Indeed, at times, commencing litigation may form part of a broader strategy to obtain leverage in commercial discussions with a firm with market power or to force progress where negotiations have stalled or been rebuffed.

It is early days, and certainly too early to form a view as to how Courts will approach these issues and, especially, the need for private litigation to occur in a ‘live’ and shifting competitive environment where the litigation itself may play a part in the factual matrix.

Whether this results in section 46 cases becoming subject to the same pitfalls as has occurred for the ACCC in section 50 litigation remains to be seen. However, arguably an assessment of a counterfactual under a section 50 merger assessment and a section 46 private litigation are distinguishable. Unlike mergers which involve transactions that have the potential to significantly alter the fundamental structure of a market, the commercial disputes under section 46 are the subject of unilateral behavioural conduct only, and so the alleged counterfactual being proposed should have a much more solid grounding in the existing facts, market structure and circumstances, making the counterfactual less contentious.

(b) The structure of the section 46 provision – with a focus on vertically integrated behaviour – creates complex market definition questions

An important area of uncertainty under the new section 46 is the extent to which claims can only be brought in response to behaviour by vertically-integrated firms. The section requires that conduct must have an effect on competition in either:

  • the market in which the firm holds market power; or
  • any other market in which the firm, or its related bodies corporate, supply or acquire goods (including indirectly through another person).

The Explanatory Memorandum to the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 (Cth) that introduced the new section 46 notes at [1.41] that:

the scope of section 46 is limited to those markets in which the corporation’s conduct is most likely to have a purpose, effect or likely effect of competition concern. In practice, it is unlikely that a corporation’s conduct will have a purpose, effect or likely effect of substantially lessening competition in an unrelated market without also having that purpose, effect or likely effect in one of the markets described in subsection 46(1). The provisions within subsection 46(1) limit the scope of section 46 to situations where there is an actual or likely supply or acquisition of goods or services, by the corporation or another prescribed entity.

As a practical matter, this means that to bring a claim, the applicant will usually need to demonstrate that it is either competing directly in the same market as the firm with market power, or in a related upstream or downstream market where the firm also competes (itself or through a related entity). This means that anti-competitive price discrimination (and margin squeeze cases) remain within scope, but monopoly pricing itself is unlikely to be subject to section 46.

This is likely to mean that, in some section 46 cases, the question of market definition takes on an even more important role. Of course, market definition is always relevant under section 46, because it is crucial to demonstrating whether substantial market power exists as well as to establishing the extent of any competitive effect. However, in many cases, technical market definition arguments may now also be relevant to whether a claim can be brought for conduct at all (if there is a question as to whether or not the firm with market power supplies or acquires in a related market, where the applicant competes and the effect is claimed to be experienced).

(c) Discovery and remedies

Private litigation almost always turns, ultimately, on price – as is evident in cases brought by private litigants under section 46 to date (B&K Holdings, Qube and Epic). It is also a feature of the ACCC’s prosecution in TasPorts.

In ACCC litigation, the question of price-related remedies is less complicated because usually the regulator is seeking only pecuniary penalties.

However, for private litigants, the attractiveness of section 46 as a legal claim will depend to a substantial degree on whether Courts can develop a set of remedies that adequately respond to anti-competitive pricing practices.

The form of injunctive relief granted in relation to pricing has been a longstanding and complex problem for antitrust regulators and courts globally, including in Australia. There has yet to be pricing relief granted in Australia in response to a breach of section 46 (consider, for example, Queensland Wire Industries v BHP (1989) 167 CLR 177 which settled before a decision on remedies was made and NT Power Generation v Power and Water Authority (2004) 219 CLR 90 which was governed by a regulatory framework).

More thought needs to be given to how remedies, particularly injunctive remedies, can be framed to provide protection from anti-competitive pricing practices involving firms with substantial market power.

Finally, private litigants also do not enjoy access to the coercive investigatory powers of the ACCC. This typically means that discovery (and subpoena) processes, including discovery at a preliminary stage (i.e. before finalising or bringing a claim) can play a greater role in the strategic decision making of a private litigant.

Conclusion

Even under the revised statutory test, with its lower legal threshold, private litigation under section 46 of the CCA remains challenging and not for the faint-hearted.

However, while we are yet to see cases come to trial, the early signs are promising for litigants, with Courts prepared to grant interim injunctive relief and parties reaching commercial settlements. Certainly, parties appear more willing to use section 46 litigation as a means of pro-actively responding to market threats.

At the same time, private litigation offers a range of new and complex strategic considerations. Private litigants typically bring cases earlier, rely more heavily on discovery processes and look for more flexible and targeted injunctive relief then the ACCC, which has the benefit of coercive investigation powers and pecuniary penalties.

All of this makes the next few years a critical experiment to test the effectiveness of the remodelled misuse of market power provisions.