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What is the legal framework in your jurisdiction covering the behaviour of dominant firms?
The Competition and Consumer Act 2010 (Cth) (CCA) deals with the unilateral conduct of firms with a substantial degree of power in a market, which is a lower threshold than dominance. Specifically, section 46(1) of the CCA prohibits corporations with a substantial degree of power in a market from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition in that or any other market in which the corporation supplies or acquires goods or services, or does so indirectly through one or more persons.
This prohibition has applied since 6 November 2017. Prior to this date, firms with substantial market power were prohibited from ‘taking advantage’ of that power for a prohibited anticompetitive purpose (such as damaging a competitor, or preventing or deterring entry into a market). As noted in detail in ‘Update and trends’, the prohibition was amended after a comprehensive review of Australia’s competition laws in 2015 (Harper Review), which recommended reframing section 46 to include an effects test and remove the requirement that a firm ‘take advantage’ of its market power.
Section 46A prohibits the misuse of market power by firms with a substantial degree of market power in trans-Tasman markets (see question 9).
In addition, a telecommunications carrier or carriage service provider that has a substantial degree of power in a telecommunications market is prohibited from taking advantage of that power with the effect or likely effect of substantially lessening competition in a telecommunications market (see Part XIB of the CCA).
Definition of dominance
How is dominance defined in the legislation and case law? What elements are taken into account when assessing dominance?
The relevant concept under the CCA is a ‘substantial degree of power in a market’, which is a lower threshold than dominance. Market power has been interpreted by the courts to mean the ability of a firm to act without competitive constraint. Such market power may be evidenced by a firm’s ability to:
- raise prices to supra-competitive levels for a non-transitory period of time without its rivals taking away customers;
- withhold supply; and
- determine non-price terms and conditions.
Financial strength alone is not an indicator of market power.
‘Substantial’ has been defined as something ‘considerable’ or ‘large’ but less than ‘commanding a market’ or a ‘monopoly’. The CCA also specifies that a corporation may have a substantial degree of market power even if it does not:
- substantially control the market; or
- have absolute freedom from constraint by the conduct of competitors, suppliers and customers (section 46(3C)).
Subsections 46(3) to (8) aid in determining when a firm has a substantial degree of market power. More than one firm may have a substantial degree of power in a market (section 46(7)) and a supplier or an acquirer in that market could have market power (section 46(8)(c)).
The question of whether a firm has a substantial degree of market power is interconnected with the question of market definition and is analysed by the court after the identification of the relevant market (see question 9).
Purpose of legislation
Is the purpose of the legislation and the underlying dominance standard strictly economic, or does it protect other interests?
The CCA contains an object clause (section 2) that highlights the CCA’s dual role of promoting competition and protecting consumers, stating that ‘the object of the Act is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection’. The courts have also found that the objective of section 46 is to promote competition rather than the interests of particular persons or corporations. Consistent with this, the recent amendments to section 46 were described by the Australian government as shifting the focus of the prohibition on to the competitive process rather than individual competitors. The Government’s Explanatory Memorandum that accompanied the bill in the Australian parliament makes clear that the objective of section 46 ‘is not to shield inefficient competitors from the natural effects of strong competition in a market’. Section 46 and other provisions in Part IV of the CCA also draw on economic concepts, though, over time, notions of efficiency and consumer welfare may have developed beyond their strict economic meaning.
Sector-specific dominance rules
Are there sector-specific dominance rules, distinct from the generally applicable dominance provisions?
There is sector-specific regulation of telecommunications and energy. Part XIB of the CCA deals with anticompetitive conduct in the telecommunications industry and Part XIC of the CCA contains a telecommunications access regime. Energy infrastructure at the transmission and distribution level is regulated under the National Electricity Law or the National Gas Law.
Sector-specific regulation applying to the telecommunications and energy industries operates alongside the general misuse of market power prohibition in section 46 of the CCA.
Exemptions from the dominance rules
To whom do the dominance rules apply? Are any entities exempt?
The misuse of market power provisions applies to corporations. This includes foreign, trading or financial corporations, as well as both public and private corporations. No legislation binds the Crown, or public entities such as government departments and public corporations, unless the legislation expressly names the Crown or implies that the Crown is to be bound. This principle is referred to as Crown immunity. The CCA expressly binds public entities only to the extent that they are ‘carrying on a business’, which includes a business not carried on for profit. Collecting taxes, licensing and transactions involving persons who are all acting for the same authority (Commonwealth, state or territory) and non-commercial public authorities are not activities that amount to carrying on a business. The CCA does not bind the Crown if it is not carrying on a business. However, private corporations dealing with the Crown will not be protected by any immunity deriving from the Crown’s immunity. A private corporation must, therefore, consider whether its conduct could breach section 46 of the CCA when entering into an agreement with the Crown even if the Crown’s conduct may be subject to Crown immunity.
The telecommunications sector-specific misuse of market power provisions in Part XIB applies to carriers and carriage service providers only.
Transition from non-dominant to dominant
Does the legislation only provide for the behaviour of firms that are already dominant?
Section 46 of the CCA only applies to the conduct of a firm with a substantial degree of market power. If a firm does not have a substantial degree of market power (see question 2), then its conduct is not covered by section 46 of the CCA. This is the case even if the relevant conduct would result in the firm obtaining or acquiring a substantial degree of market power. However, the conduct does not need to have the purpose, effect or likely effect of substantially lessening competition in the same market as that in which the firm has substantial market power. The prohibition extends to conduct that has the purpose, effect or likely effect in any other market in which the corporation or a related body corporate:
- supplies or is likely to supply goods or services;
- supplies or is likely to supply goods or services indirectly through one or more other persons;
- acquires or is likely to acquire goods or services; or
- acquires or is likely to acquire goods or services indirectly through one or more other persons (section 46(b) to (c)).
There was some public concern (not universal) that the CCA did not cover situations where firms acquire market power incrementally through small-scale mergers or acquisitions (‘creeping acquisitions’). ‘Creeping acquisitions’ refer to mergers or acquisitions that, individually, do not substantially lessen competition, but collectively may do so. An amendment to section 50 of the CCA, which came into effect in February 2012, sought to address these concerns. The amendment involved two key changes: the removal of the requirement that a market be ‘substantial’ and the replacement of ‘a relevant market’ with ‘any relevant market’. While the changes have not yet been tested in court, the Australian Competition and Consumer Commission (ACCC) has been reviewing (and opposing) small-scale mergers and acquisitions, including the acquisition of single supermarkets or stores.
Is collective dominance covered by the legislation? How is it defined in the legislation and case law?
Currently, there is no separate concept of collective dominance in Australia. However, more than one corporation may have a substantial degree of power in a market (section 46(7)). In determining whether a corporation has a substantial degree of market power, a court may: combine the market power of the corporation and its related entities (section 46(3)); and take into account any market power derived from contracts or arrangements with others (section 46(4)(b)).
Does the legislation apply to dominant purchasers? Are there any differences compared with the application of the law to dominant suppliers?
The legislation applies equally to suppliers and purchasers who have a substantial degree of market power.
Market definition and share-based dominance thresholds
How are relevant product and geographic markets defined? Are there market-share thresholds at which a company will be presumed to be dominant or not dominant?
The concept of a ‘market’ is used in most of the prohibitions in Part IV of the CCA, including section 46. The test for market definition is consistent across these prohibitions. A ‘market’ is defined in section 4E of the CCA as ‘a market in Australia and, when used in relation to goods or services, includes a market for those goods or services and other goods and services that are substitutable for, or otherwise competitive with, the first-mentioned goods and services’. This definition makes clear that the parameters of a market are governed by the concepts of substitution and close competition. The definition also embodies the ‘small but significant non-transitory increase in price (SSNIP) test’ for defining markets, which seeks the narrowest product and geographical space over which a hypothetical monopolist could impose a SSNIP.
While the definition of ‘market’ refers to a market in Australia, section 46A relates to the misuse of market power in a market in Australia, New Zealand, or in both. This has ramifications for trans-Tasman trade and expressly expands the applicability of the CCA to such markets.
There is no market-share threshold above which a company will be considered to have a substantial degree of market power. Market power is a question to be determined on a case-by-case basis. In practice, a high market share may be an indicator of market power, but is only one indicator among other factors, such as barriers to entry and expansion. However, there have been cases where a corporation with a 20 to 30 per cent market share has been found to have a substantial degree of market power.
In determining the degree of power that a corporation has in a market, regard must be had to the extent to which the conduct is constrained by that of competitors or potential competitors in that market, or persons to or from whom the corporation supplies or acquires goods or services (section 46(4)(a)).
Abuse of dominance
Definition of abuse of dominance
How is abuse of dominance defined and identified? What conduct is subject to a per se prohibition?
Section 46 of the CCA is directed at prohibiting a firm with a substantial degree of market power from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition. It is not directed at prohibiting the possession of a substantial degree of market power, although the existence of that power is a precondition for section 46 (see question 2). As noted in question 1 and in ‘Update and trends’, section 46 was amended in November 2017 to include a competitive effects test. There is no longer a requirement to show that a firm has ‘taken advantage’ of its substantial market power, for one of three proscribed anticompetitive purposes, for a contravention to be established.
‘Substantial lessening of competition’ is a concept that is used in other prohibitions in the CCA. ‘Lessening of competition’ is defined to include preventing or hindering competition (section 4G). The courts have found that a lessening of competition means a reduction or loss of competition as a result of the conduct that is ‘meaningful or relevant to the competitive process’ (Stirling Harbour Services Pty Ltd v Bunbury Port Authority, Rural Press v ACCC (2003)) and that it involves considering the future state of competition without and without the impugned conduct (Dandy Power Equipment (1982)). The ACCC’s interim guidelines on section 46 explains that ‘conduct substantially lessens competition when it interferes with the competitive process in a meaningful way by deterring, hindering or preventing competition’.
As noted above, section 46 is not limited to particular anticompetitive purposes. The assessment of purpose is a subjective inquiry as to what a firm intended to achieve through its conduct. Direct evidence of purpose is not necessary. Purpose can be inferred from a firm’s conduct, the conduct of any other person or the relevant circumstances. The courts have found in Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989), Boral Besser Masonry Ltd v ACCC (2003) and other cases that meeting competition is a legitimate purpose and have cautioned against confusing aggressive competitive intent with anticompetitive behaviour.
There is no misuse of market power conduct that is subject to a per se prohibition. However, in its interim guidelines, the ACCC identifies the following types of conduct that may involve a misuse of market power: refusal to deal, restricting access to an essential input, predatory pricing, loyalty rebates, margin or price squeezing, and tying and bundling.
Exploitative and exclusionary practices
Does the concept of abuse cover both exploitative and exclusionary practices?
The misuse of market power prohibition will only cover exploitative and exclusionary practices to the extent that those practices are engaged in by a firm with substantial market power and have the purpose, effect or likely effect of substantially lessening competition. It is less common for exploitative practices to be caught under the prohibition as courts have typically distinguished between conduct to meet competition and conduct that is anticompetitive. For example, defensive price cutting or profit maximisation may not be caught by the section 46 prohibition except where it is engaged in with an anticompetitive purpose or has an anticompetitive effect (or likely effect). Exclusionary practices may be caught by the prohibitions against cartel conduct (Division 1, Part IV), concerted practices (section 45), anticompetitive agreements (section 45) and exclusive dealing that substantially lessens competition (section 47).
Link between dominance and abuse
What link must be shown between dominance and abuse? May conduct by a dominant company also be abusive if it occurs on an adjacent market to the dominated market?
Since 6 November 2017, there is no longer a requirement to show that there is a link between a firm’s substantial degree of market power and its conduct. A firm with substantial market power will contravene section 46 if its conduct has the purpose, effect or likely effect of substantially lessening competition in any other market in which it supplies or acquires goods or services, or supplies or acquires goods indirectly through other persons, even though it may not have market power in those markets.
What defences may be raised to allegations of abuse of dominance? When exclusionary intent is shown, are defences an option?
There are no specific defences that may be raised to allegations of misuse of market power, but efficiency gains or other pro-competitive purposes or effects will be considered in assessing if the conduct is pro-competitive rather than anticompetitive overall (see question 10). A firm may also argue that it does not have a substantial degree of market power.
It is now also possible for firms to apply to the ACCC for authorisation of conduct that might contravene section 46. Authorisation provides the firm engaging in the conduct with legal immunity. Authorisation cannot, however, be sought for past conduct. The ACCC may grant authorisation if it is satisfied that the conduct either does not have the effect or likely effect of substantially lessening competition or meets the ‘net public benefit’ test.
Specific forms of abuse
Types of conduct Types of conduct
Indicate to what extent the following types of conduct (questions 14–25) are considered abusive. Mention briefly any leading precedents on, and the relevant tests for, assessing the categories of conduct: Rebate schemes
Rebate schemes may contravene section 46 if they are used by a firm with substantial market power for the purpose, or with the effect or likely effect, of substantially lessening competition. Under section 46, the form of discounting does not matter; either retroactive or incremental rebates could be a contravention if the elements of section 46 are made out.
In its interim section 46 guidelines, the ACCC acknowledges that rebates usually do not harm competition and can reduce the overall price consumers pay for goods and services. The ACCC considers that a firm with market power may breach section 46 by offering a rebate that is conditional on a distributor meeting sales targets, such as volume rebates that are based on a customer purchasing a large quantity of its requirements from the firm.
Tying and bundling
Tying and bundling may contravene section 46 if they are engaged in by a firm with substantial market power and subject to establishing the other elements for a contravention of section 46. Notably, a firm may contravene section 46 if it bundles a product for which it is the only supplier with another product that it supplies in another market in which it may not have a substantial degree of market power. In ACCC v Baxter Healthcare Pty Ltd (2008), the Full Federal Court found that Baxter had substantial power in the market for sterile fluids, of which it took advantage by offering bundles of its sterile fluids with its peritoneal dialysis (PD) products for a prohibited purpose. The bundled package was cheaper than the individual products separately. The court also found that Baxter had the purpose of deterring or preventing competition from rival suppliers of PD products.
Exclusive dealing is typically addressed under section 47 of the CCA, which applies to all firms regardless of market power. Exclusive dealing is subject to a competition test and will only be prohibited where it has the purpose, effect or likely effect of substantially lessening competition. The courts have found that exclusive dealing in the form of exclusive distributorships or other non-price vertical restraints may be pro-competitive in that they may restrict intra-brand competition but promote inter-brand competition (see Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001)). However, this is not always the case. In Universal Music v ACCC (2003), the Federal Court found that the restriction on parallel importing that Universal and Warner wanted to impose on distributors was not pro-competitive and was a strategy designed with an anticompetitive purpose in mind.
Non-compete provisions are more likely to be dealt with under the civil or criminal prohibitions on cartel conduct, which apply to market-sharing agreements between competitors (ie, agreements that allocate customers, suppliers or territories). There is no requirement of market power under the cartel prohibitions.
From 6 November 2017, predatory pricing is no longer specifically prohibited by section 46. However, it may be caught by the general misuse of market power prohibition (section 46(1)). In its interim guidelines on section 46, the ACCC expressly identifies predatory pricing as a type of conduct that has a greater potential to involve a misuse of market power.
Prior to 6 November 2017, a corporation with a substantial share of a market was prohibited from pricing below the ‘relevant cost’ of supply for a sustained period for one of three proscribed purposes (section 46(1AA)). This specific predatory pricing prohibition was introduced in 2007 but never tested by the courts. The CCA also provided that a corporation that engages in pricing below ‘relevant cost’ for a sustained period may be taking advantage of its market power in breach of section 46(1) even if there is no ability to recoup losses (section 46(1AAA)). These specific provisions, including the removal of recoupment as a necessary element, have been repealed.
The most recent predatory pricing case is ACCC v Cabcharge (2010). The case was settled by admission, in which Cabcharge admitted to contravening section 46(1) by supplying taxi meters and associated fare schedule updates below cost for an anticompetitive purpose. As referred to in question 29, penalties in relation to Cabcharge’s admitted predatory pricing conduct were A$3 million.
Price or margin squeezes
A price squeeze by vertically integrated companies with a substantial degree of market power may constitute a breach of section 46 of the CCA if the elements of the prohibition are established. The price squeeze must be accompanied by evidence that the squeeze has the purpose, effect or likely effect of substantially lessening competition. In its interim section 46 guidelines, the ACCC states that a firm with market power can engage in a margin or price squeeze to disadvantage its competitors in a downstream market, which may prevent an equally efficient competitor from competing on its merits.
For the telecommunications industry, a firm may breach the CCA by taking advantage of market power even if there is no anticompetitive purpose, provided there is an anticompetitive effect. Part XIB of the CCA prohibits a telecommunications carrier or carriage service provider from engaging in anticompetitive conduct, which is defined to include taking advantage of a substantial degree of power in a telecommunications market. However, this prohibition is a variant of section 46 as it does not require an anticompetitive purpose and is effects-based, that is, under Part XIB, the misuse of market power must have the effect or likely effect of substantially lessening competition.
Refusals to deal and denied access to essential facilities
Section 46 is intended to prohibit conduct that restricts competition rather than the interests of particular persons or competitors. A refusal to deal is therefore only prohibited under section 46 if it has an anticompetitive purpose or effect. For example, in Melway Publishing v Robert Hicks Pty Ltd (2001), the High Court emphasised that a firm with substantial market power is under no legal obligation to appoint new wholesale distributors and recognised that non-price vertical restraints in distribution could promote inter-brand competition. There have been other cases where refusals to deal have been found to be justified by a supplier’s legitimate business interests (eg, Top Performance Motors Pty Ltd v Ira Berk (Qld) Pty Ltd (1975) and Regent’s Pty Ltd v Subaru (Aust) Pty Ltd (1996)). These cases are still relevant even though they involve the previous section 46 prohibition.
The ACCC’s interim guidelines on section 46 expressly address refusals to deal, considering a situation where an incumbent firm refuses to provide access to an input that it manufactures locally, and is essential to compete downstream. The ACCC notes that transport of the input to the local market would involve a significant cost for a new entrant. The ACCC considers the effect of the refusal to supply to be to prevent the new entrant entering the market and is of the view that the conduct would be likely to breach section 46. It should be noted that this example has been heavily criticised in comments on the Interim Guidelines, as focused on protecting competitors, rather than the competitive process.
In ACCC v Cabcharge (2010), the ACCC obtained penalties totalling A$14 million, including A$11 million for admissions by Cabcharge relating to its refusal to allow competitor non-cash systems for payment to process Cabcharge cards. More recently, on 1 May 2017, the ACCC instituted proceedings against a private hospital operator for allegedly refusing to deal with a group of surgeons who were seeking to establish a competing private day surgery facility (see question 29).
There are, however, express prohibitions on refusals to supply in the CCA that apply to all corporations, including those without market power. A refusal to supply may be in breach of the CCA if it can be characterised as:
- an agreement that has the purpose, effect or likely effect of substantially lessening competition (section 45);
- exclusive dealing (section 47); or
- resale price maintenance (section 48).
In relation to access to essential facilities, section 46 does not create an obligation on owners of essential facilities to give third parties access to those facilities. However, if the elements of section 46(1) are made out (see question 10), it may be possible to use section 46 to create a de facto access regime, though there would be some difficulties in framing the appropriate court orders (NT Power Generation Pty Ltd v Power and Water Authority (2004)). There is also a general access regime in Part IIIA of the CCA for bottleneck infrastructure and a telecommunications access regime in Part XIC, while access to gas and electricity infrastructure are dealt with under the National Gas Law and National Electricity Law respectively. Aside from those access regimes, there is no separate ‘essential facilities’ doctrine in Australia.
Predatory product design or a failure to disclose new technology
There has not been a section 46 case in Australia on such conduct, although it may be possible to bring such a case if the requisite elements of section 46 are present. Such behaviour may also be caught by the civil or criminal prohibitions on cartel conduct if it involves an agreement between competitors. There is no requirement of market power under the cartel prohibitions.
In general, price discrimination does not of itself necessarily involve a misuse of market power. However, if price or non-price discrimination amounts to conduct by a firm with substantial market power that has the purpose, effect or likely effect of substantially lessening competition, then it may contravene section 46 of the CCA. Price discrimination usually manifests in the form of other conduct such as bundling, price squeezes and refusals to deal, which are discussed in questions 15, 18 and 19 respectively.
Exploitative prices or terms of supply
Merely charging excessively high prices or putting in place exploitative terms of supply is not a misuse of market power under section 46 unless all the elements of section 46 are made out. The ACCC does, however, have the power to hold price inquiries in relation to the supply of goods or services under Part VIIA of the CCA. This price surveillance power enables the ACCC to declare goods and services to restrict a person’s ability to increase the price of such goods or services during a specified period.
Abuse of administrative or government process
The use of government process to exclude rivals from a market or to increase rivals’ costs may theoretically involve a breach of section 46 if an anticompetitive purpose or effect (or likely effect) can be demonstrated. Under the previous iteration of section 46, it would have been difficult in practice to establish that the use of a public government process involved ‘taking advantage’ of one’s market power for a proscribed purpose. With the removal of the ‘taking advantage’ requirement, there is potentially more scope for such conduct to be challenged as a misuse of market power, if rivals of a firm with a substantial degree of market power are foreclosed as a result.
Mergers and acquisitions as exclusionary practices
As noted in question 6, mergers and acquisitions are subject to a substantial lessening of competition test under section 50 of the CCA. Amendments to the CCA in 2012 were intended to address ‘creeping acquisitions’ (see question 6) and the accretion of a substantial degree of market power over time through small, incremental acquisitions.
Section 46 of the CCA does not list particular types of conduct that would be a misuse of market power, and subject to establishing the elements required for a contravention of section 46, the type of conduct that may be proscribed is not closed. As noted above, the ACCC has identified the following conduct as having a greater potential to involve a misuse of market power: refusals to deal, restricting access to essential inputs, predatory pricing, loyalty rebates, margin or price squeezes, and tying and bundling. However, it also notes that it is not possible to identify with precision particular types of conduct that necessarily involve a misuse of market power, as whether conduct amounts to a misuse of market power will depend on the circumstances.
Which authorities are responsible for enforcement of the dominance rules and what powers of investigation do they have?
The ACCC is responsible for investigating and prosecuting civil contraventions of the CCA. It has extensive powers of investigation under Part XID of the CCA. These powers include:
- the power to compel the production of information and documents that relate to the alleged contravention;
- the power to compel particular persons to appear before the ACCC and provide oral or written evidence under oath; and
- the power to enter and search premises either with consent or pursuant to a warrant. While on the premises, the ACCC can ask questions of the occupants, make copies of material or seize relevant material (including electronic material).
The majority of prohibitions, including the prohibition on misuse of market power, are subject to judicial enforcement.
Sanctions and remedies
What sanctions and remedies may the authorities impose? May individuals be fined or sanctioned?
For a contravention of section 46, the following sanctions and remedies may be imposed:
- a declaration that the conduct breaches the CCA;
- an injunction restraining the parties from engaging in the conduct or a mandatory order that a person engage in particular conduct;
- an order disqualifying a person from managing a corporation;
- an order for damages for those who have suffered loss or damage from the conduct including individuals; and
- ancillary orders.
Only the ACCC may seek pecuniary penalties. The maximum penalty for each contravention by a corporation is the greatest of the following:
- A$10 million;
- when the value of the benefit from the conduct is ascertainable, three times the value of the illegal benefit; or
- when the value of the benefit from conduct is unascertainable, 10 per cent of the annual turnover of the body corporate and its related bodies corporates in the 12 months preceding the conduct.
For individuals, the maximum penalty is A$500,000. In rare circumstances, an individual may be liable as an accessory under section 75B of the CCA, if they have aided or abetted, or been knowingly concerned in, a contravention of section 46.
To assess the size of the penalty to be imposed, the court generally considers a number of factors, including the conduct, the loss or damage caused, the size of the company and the market, the degree of power and whether the conduct was deliberate.
To date, the highest penalty that has been imposed for a breach of section 46 is A$14 million, which was imposed in the ACCC’s proceedings against Cabcharge (see question 29).
In addition to the sanctions and remedies mentioned above, the court may accept undertakings from parties that they will not engage in particular conduct. The ACCC may also accept court-enforceable undertakings under section 87B of the CCA.
Can the competition enforcers impose sanctions directly or must they petition a court or other authority?
As noted in question 26, the ACCC has extensive powers of investigation. However, the ACCC does not have the power to determine whether section 46 has been contravened or to impose penalties. Rather, the ACCC must institute proceedings in the Federal Court of Australia for an alleged contravention and seek remedies. As noted in question 27, those remedies may include a pecuniary penalty, as well as declarations and injunctions.
What is the recent enforcement record in your jurisdiction?
The ACCC receives thousands of complaints annually regarding conduct potentially in breach of Part IV of the CCA. These would include complaints relating to alleged misuse of market power under section 46 of the CCA. While the ACCC would be likely to investigate some of these complaints on a confidential basis, very few cases proceed to court, and of those that do, many cases settle. The section 46 cases that do proceed to a court hearing often take years to resolve. In the past five years, the ACCC has commenced a number of proceedings alleging contraventions of section 46 (among others) with limited success. As at the date of writing, no cases have been initiated under the new section 46 prohibition that came into effect on 6 November 2017. The cases referred to below were all brought under the previous prohibition.
On 1 May 2017, the ACCC instituted proceedings against private hospital operator Ramsay Health Care Australia for allegedly misusing its market power by making threats to reduce a group of surgeons’ access to the only private hospital and private day surgery facilities in the Coffs Harbour region if they were involved in establishing a competing private day surgery facility in Coffs Harbour. The ACCC alleged that Ramsay engaged in this conduct to deter or prevent new entry in the day surgery market in the region or to substantially lessen competition in that market. As at the time of writing, a trial has been set down for three weeks, commencing on 13 August 2018.
On 13 February 2014, the ACCC instituted proceedings in the Federal Court of Australia against Pfizer Australia Pty Ltd (Pfizer) for alleged misuse of market power and anticompetitive exclusive dealing in relation to the supply of its branded and generic atorvastatin medicines to pharmacies. Atorvastatin is a pharmaceutical drug used to lower cholesterol and at the time of the alleged conduct was the highest selling drug in Australia. The ACCC sought pecuniary penalties, declarations and costs. Part of the ACCC’s case was that prior to the expiration of Pfizer’s patent, Pfizer offered pharmacies discounts if they purchased significant volumes of Pfizer’s branded atorvastatin product (Lipitor) and its own generic atorvastatin, for the purpose of preventing generic companies for competing with Pfizer. The Federal Court handed down judgment on 25 February 2015 (ACCC v Pfizer (2015)) and found that although the patent had not yet expired, Pfizer’s market power was no longer substantial at the time it made the offers to pharmacies in January 2012 owing to the imminent entry of a significant number of generic competitors. The ACCC also failed to establish that Pfizer had a proscribed anticompetitive purpose. The ACCC appealed the decision and the appeal was heard by the Full Federal Court in November 2015. At the time of writing, the judgment is still pending.
On 4 February 2013, the ACCC instituted proceedings against Visa Inc alleging, among other things, a misuse of market power in relation to payments systems to prevent competition in relation to direct currency conversion services that might otherwise be offered at point of sale or at ATMs, as well as anticompetitive exclusive dealing. The proceedings were settled on 4 September 2015, with Visa admitting a contravention of section 47 of the CCA (exclusive dealing with the likely effect of substantially lessening competition in the market in Australia for currency conversion services on the Visa network). Visa paid an A$18 million penalty and A$2 million in respect of the ACCC’s legal costs (ACCC v Visa (2015)). Visa did not admit the misuse of market power allegation under section 46 and the ACCC agreed not to pursue the claim as part of the settlement.
The ACCC settled two other section 46 cases before the substantive proceedings were heard by the Federal Court. In ACCC v Ticketek Pty Ltd (2011), the penalties totalled A$2.5 million, and in ACCC v Cabcharge Australia Ltd (2010), the penalties totalled A$14 million (including A$3 million for Cabcharge’s admitted predatory pricing and A$11 million for admissions in relation to refusals to supply in breach of section 46).
In ACCC v Cement Australia Pty Ltd & Others (2013), which was initiated by the ACCC in 2008 and heard by the Federal Court in 2010-2011, the court found that Cement Australia did not contravene section 46. While Justice Greenwood found that Cement Australia had market power in the South East Queensland fly ash market, his Honour held that Cement Australia did not take advantage of its market power in entering the sourcing contracts, because another corporation in Cement Australia’s position, but in a workably competitive market, could have entered into the contract on those same terms and conditions.
Where a clause in a contract involving a dominant company is inconsistent with the legislation, is the clause (or the entire contract) invalidated?
Where the court has found a contravention of section 46 or 46A, contracts entered into will not automatically lose their validity. However, the court has discretion to make ancillary orders, including that contracts entered into are void (in whole or in part) or must be varied.
To what extent is private enforcement possible? Does the legislation provide a basis for a court or other authority to order a dominant firm to grant access, supply goods or services, conclude a contract or invalidate a provision or contract?
Private litigants can institute proceedings for a contravention of section 46. Private litigants are able to seek the same remedies and orders as the ACCC can seek, except for pecuniary penalties (see questions 32 and 34). Private litigants may proceed as a class action (representative proceedings) in appropriate circumstances.
In terms of refusal to supply and refusal of access, there are clear precedents that this conduct could constitute a misuse of market power (see Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) and NT Power Generation Pty Ltd v Power & Water Authority (2004)). Private litigants can, therefore, bring an action in these circumstances. Moreover, as noted above, Part IIIA provides a regime by which third parties can seek access to infrastructure owned by another.
Do companies harmed by abusive practices have a claim for damages? Who adjudicates claims and how are damages calculated or assessed?
Private litigants may institute proceedings seeking damages arising for loss or damage suffered as a result of a contravention of section 46 (section 82). Actions for damages under the CCA must be brought within six years of the accrual of the cause of action (section 82(2)).
Under section 87(1B), the ACCC can bring an action on behalf of people who have suffered damage or loss. Alternatively, a class action can be brought by seven or more persons that have similar claims for damages arising from a breach of section 46 (see section 33C(1) of the Federal Court of Australia Act 1976 (Cth)).
Section 82 does not provide express guidance to the court in assessing the amount of any loss or damage suffered by a company. In Kizbeau Pty Ltd v WG & B Pty Ltd (1995), the High Court suggested that the rules for assessing damages in tort are the appropriate guide in most, if not in all, cases. However, it has also been recognised that the statutory right to damages conferred by section 82 serves a wider purpose and is intended to have a broader ambit than a common law action.
As mentioned in question 29, the ACCC tends to settle most section 46 cases. With the judgment pending in relation to ACCC v Pfizer, the two most recent cases that involved settlement in relation to contraventions of section 46 are ACCC v Ticketek Pty Ltd (2011) and ACCC v Cabcharge Australia Ltd (2010). In the penalty judgment for ACCC v Ticketek Pty Ltd (2011), Justice Bennett stated that the agreed figure was ‘meaningful and substantial, serving the objects of general and specific deterrence and serving the public interest in encouraging the cooperation of parties the subject of Part IV investigation and litigation’.
To what court may authority decisions finding an abuse be appealed?
The ACCC does not have the power to determine whether there has been a contravention of section 46 or impose penalties. Rather, a finding of a misuse of market power can only be made by the Federal Court. The Federal Court hears the matter at first instance and its decision may be appealed to the Full Federal Court on a question of law. A decision of the Full Federal Court may also be appealed to the High Court, with leave.
Unilateral conduct by non-dominant firms
Are there any rules applying to the unilateral conduct of non-dominant firms?
As section 46 focuses on the unilateral conduct of firms with a substantial degree of market power, it is a lesser threshold than dominance and, therefore, may apply to the conduct of a firm that would not be considered dominant. Exclusive dealing prohibitions under section 47, prohibiting a firm from imposing conditions on supply or acquisition of goods or services that have an anticompetitive purpose or effect, also applies to the conduct of non-dominant firms that are, or may be, unilateral in character. Further, Australia’s per se minimum resale price maintenance prohibition does not require proof of dominance, market power or the existence of a contract, arrangement or understanding.
The Australian Consumer Law, which is Schedule 2 to the CCA, also regulates the unilateral behaviour of all firms in relation to how they deal with ‘consumers’, which includes businesses. The ACL prohibits unconscionable conduct, misleading or deceptive conduct, false or misleading representations, and unfair consumer contract terms in consumer and small business contracts.
Update and trends
Update and trends
Updates and trends
On 14 August 2017, the Australian parliament passed the Competition and Consumer Amendment (Misuse of Market Power) Bill 2017, which amended section 46 of the CCA to, among other things, include an effects test. The changes took effect on 6 November 2017.
The table below compares the key features of the new section 46 with the previous section 46.
The change to section 46 followed a series of government reviews and consultation processes, including the Harper Review, which was the first comprehensive review of Australia’s competition framework since the Hilmer Committee’s review in 1993. The Harper Review concluded that the previous section 46 was not effective in targeting unilateral anticompetitive conduct for two main reasons. Firstly, the ‘taking advantage’ element was not a useful test to distinguish between competitive and anticompetitive conduct and was difficult for the courts to interpret. Secondly, the proscribed purpose related to conduct that harmed competitors rather than the competitive process, which was out of step with competition policy and international approaches.
The Australian government adopted in full the amendments to section 46 proposed by the Harper Review, including removing the ‘taking advantage’ element, removing the focus on purposes aimed at particular competitors, and introducing a competitive effects test.
The ACCC released interim guidelines on the new misuse of market prohibition in October 2017, setting out how it proposes to interpret the new section and the general enforcement approach it will take. The interim guidelines list the following priority matters in enforcing compliance with the CCA:
- conduct resulting in substantial consumer (including small business) detriment;
- conduct demonstrating a blatant disregard for the law;
- conduct involving issues of national or international significance;
- conduct involving essential goods or services;
- conduct detrimentally affecting disadvantaged or vulnerable consumer groups;
- conduct in concentrated markets that impacts on small businesses or suppliers;
- conduct that is industry-wide or is likely to become widespread if the ACCC does not intervene;
- where ACCC action is likely to have a worthwhile educative or deterrent effect; or
- where the person, business or industry has a history of previous contraventions of competition, consumer protection or fair trading laws.
Consultation on the interim guidelines closed in December 2017 and the ACCC is expected to release final guidelines in 2018.
Previous section 46
New section 46 (in force)
Applies to corporations with substantial market power.
Corporation must ‘take advantage’ of its substantial market power in engaging in the conduct.
No ‘taking advantage’ element.
Conduct must be for one of three proscribed anticompetitive purposes related to damaging a competitor or preventing entry into a market.
Conduct must have the purpose, effect or likely effect of substantially lessening competition.
Predatory pricing and other forms of conduct are expressly prohibited .
There is only a general prohibition against a misuse of market power: no specific forms of conduct are prohibited.
Authorisation is not available.
The ACCC may grant authorisation for future or ongoing conduct (not conduct that has already occurred) if it is satisfied that the conduct will not result in a substantial lessening of competition or is likely to result in a net public benefit.