The draft report of the Competition Review Panel, released late last month, is a broad-ranging and ambitious blueprint for reform of Australian competition law and policy. Encompassing 52 recommendations in total, the draft report proposes a number of significant reforms to the Competition and Consumer Act 2010 (CCA).
Amongst the proposed reforms are changes to the processes and tests for merger clearances and for exemptions from several CCA prohibitions on anti-competitive conduct. If implemented, these reforms will provide businesses entering into new transactions, distribution agreements, and various other commercial arrangements with faster, cheaper and more effective ways to get the ACCC’s stamp of approval.
There are currently three different merger clearance processes, which are subject to different tests. These are:
- the informal and formal merger clearance processes administered by the ACCC, both of which are subject to a substantial lessening of competition test; and
- the merger authorisation process administered by Australian Competition Tribunal, which is subject to a net public benefit test.
Improving timeliness and transparency of informal process
The draft report concludes that the informal process largely works well and that it would be inappropriate to attempt to regulate it.
That said, it recognises that there is room for improvement in relation to timeliness and transparency and helpfully recommends “further consultation” between the ACCC and businesses on these issues.
Streamlining formal processes
In relation to the formal processes, which the Panel says serve an important purpose despite being seldom (or never) used, it proposes some rather more dramatic changes, namely:
- amalgamating the formal clearance and authorisation processes into a single process and making the ACCC the first line decision maker, with the Tribunal acting as a review body;
- changing the applicable test to allow the ACCC to clear a merger if it is satisfied that either it will not substantially lessen competition or that it results in public benefits that outweigh anti-competitive detriment;
- removing the current prescriptive information requirements for the formal clearance process; and
- ensuring the formal process is subject to a strict 6 month timeline (with 3 months each for the initial decision and review).
Although the removal of the ability to go directly to the Tribunal has some disadvantages for merger parties– particularly as the ACCC is often criticised for taking a narrow and conservative view of market definition – on balance these disadvantages are outweighed by the advantages of the proposal as a whole and may result in the formal process being a viable and efficient alternative to the informal process for more complex transactions.
Changes to authorisations and notifications
The draft report also puts forward some sensible proposals for reform in the area of authorisations and notifications. These processes allow parties to get exemptions for conduct, including cartel conduct, exclusive dealing, resale price maintenance, and collective bargaining, that would otherwise breach the CCA.
The two most substantive proposals in this area would see the introduction of a new “block exemption” mechanism and the availability of notifications for resale price maintenance.
The “block exemption” mechanism would empower the ACCC to create a presumption of legality for certain categories of otherwise prohibited conduct on the grounds that they are unlikely to damage competition or are likely to generate significant public benefits.
The block exemption is a familiar concept in other jurisdictions. For example, in the EU a safe harbour exists for most forms of vertical restraints where the relevant parties’ shares are 30% or less of the relevant market.
This proposal, if implemented, would have significant time and cost savings for businesses as it would no longer be necessary to individually analyse, and submit applications to the ACCC, for certain forms of conduct.
Resale price maintenance
Immunity for resale price maintenance (RPM), which is prohibited outright by the CCA, is currently only available through the authorisation process.
The authorisation process is significantly more costly and time consuming than the notification process. The lodgement fee is $7500 and immunity does not commence until the ACCC grants authorisation, which may take up to six months.
The fee for notification on the other hand is between $100 - $2500 (depending on the conduct at issue) and immunity is automatically granted either immediately upon lodgement or 14 days thereafter (again depending on the conduct at issue) and continues in force unless subsequently withdrawn by the ACCC.
Moving to a notification procedure for RPM would facilitate swift and less costly clearance in cases where the conduct is unlikely to harm competition (e.g. where the market is highly competitive) or likely to have economic benefits (e.g. avoiding free riding). This may move Australia closer to other jurisdictions where RPM is subject to a competition or ‘rule of reason’ test, a step which the Panel was not prepared to recommend at this point.
Other changes to the authorisation and notification processes recommended by the draft report are to:
- reduce complexity by allowing a single application form to be filed in respect of any single commercial arrangement;
- harmonise the different tests that currently apply so that authorisations and notifications would be granted on the basis that the conduct is unlikely to substantially damage competition or it is likely to result in a net public benefit; and
- simplify the collective bargaining notification regime to encourage greater use by small businesses, including for efficiency-enhancing boycott activity.
There is significant merit to the draft report’s proposed reforms to the merger clearance and exemption processes. Unlike some of the other changes recommended by the draft report (such as the introduction of an “effects test” for misuse of market power and a new prohibition on anti-competitive “concerted practices”) they should prove relatively uncontroversial, simple to implement, and have very immediate practical benefits for businesses of all sizes when entering new transactions and structuring commercial arrangements.
The Panel has invited submissions on any aspects of its draft report by 17 November 2014. It also continues to consult through hosting public forums. The final report is expected to be issued in March 2015.