Competition law – 10 key changes in effect now

Competition and consumer lawyers Sydney antitrust lawyers Australia

It’s been a long time coming. Significant reforms to Australia’s competition laws recommended by the Harper Review back in 2015 came into effect on Monday, 6 November 2017. This article highlights 10 key changes to the Competition and Consumer Act 2010 (Cth) (CCA). We’ve also produced a Quick Guide to the changes for easy reference which you can download here.

  1. Effects test introduced in misuse of market power

The misuse of market power provision has been amended to include an effects test. The amended section 46 of the CCA prohibits any conduct engaged in by a firm with substantial market power that has the purpose, effect or likely effect of substantially lessening of competition in a market in which that firm directly or indirectly supplies or acquires goods or services.

The three key changes from the “old” section 46 are:

  • conduct that lessens competition may contravene the law even though the substantial lessening of competition was not the purpose or intention;
  • the ACCC, or other plaintiffs, no longer need to establish that the company has taken advantage of its substantial market power; and
  • the substantial lessening of competition must take place in a market in which the company supplies or acquires goods or services directly or indirectly.

The ACCC has released interim guidelines on misuse of market power which set out how the ACCC proposes to interpret section 46, and describe the general approach to be taken by the ACCC in investigating contraventions.  The ACCC is seeking submissions by 24 November 2017.

It remains to be seen the practical effect, if any, of an effects test on the development of the law or the number of cases brought.  Small businesses may have more success in redressing issues by using the unfair contract provisions and other consumer type remedies extended to small business than by undertaking complicated and costly section 46 litigation.

Commercial activities which might give rise to misuse of market power considerations include bundling products; acquiring essential inputs, services or locations; near or below cost pricing; loyalty discount schemes; and refusals to supply. Companies who may have a substantial degree of market power will need to be mindful when contemplating these types of actions, and should document business justification for these activities.

Companies can seek authorisation for conduct that may otherwise contravene section 46. The company seeking authorisation is required to demonstrate that the conduct results in a public benefit that outweighs any public detriment.

  1. Introduction of new prohibition on concerted practices

Section 45 of the CCA has been amended to introduce a new prohibition on corporations engaging in concerted practices with the purpose, or which have the effect or likely effect, of substantially lessening competition, in any market in which a corporation (or any related corporation) that is a party to the practice supplies or acquires, or is likely to supply or acquire, goods or services.

The price signalling provisions that applied to the banking sector, together with the per se prohibition on exclusionary provisions, are now repealed.

While there is no definition of a concerted practice in the CCA, the Explanatory Memorandum says a concerted practice is:

Any form of cooperation between two or more firms, or people, or conduct that would be likely to establish such cooperation, where this conduct substitutes, or would be likely to substitute, cooperation in place of the uncertainty of competition.”

To minimise the risk of engaging in a concerted practice, businesses will need to be cautious about disclosing commercially sensitive information to competitors, whether individually, through organisations such as trade associations, and even through public statements.

The ACCC has released interim guidelines on concerted practices to assist businesses understand and comply with the law. The interim guidelines set out how the ACCC proposes to interpret the new provisions, and the general approach the ACCC will take in investigating alleged contraventions.  The ACCC is seeking submissions by 24 November 2017.

  1. Third line forcing now subject to substantial lessening of competition test

Third line forcing involves the supply of goods or services or the giving of a particular price or a discount on the condition that the purchaser also acquires goods or services from another unrelated person, or a refusal to supply because the purchaser will not agree to such a condition.

Prior to the recent amendments, third line forcing was prohibited regardless of its purpose or effect on competition, and was only protected from legal action by filing a notification with the ACCC.

Now, third line forcing is only prohibited where it has the purpose, effect or likely effect of substantially lessening competition. This removes the need to notify the ACCC of third line forcing conduct, unless it would substantially lessen competition.

  1. Resale price maintenance – related party exemption and notification process adopted

Resale price maintenance is where a supplier attempts to restrict the prices for resupply of goods and services. Resale price maintenance is prohibited under the CCA regardless of its effect on competition.

The new amendments introduce a related party exemption with the effect that it will no longer be illegal for one company to set the retail price for another company within the same group. This allows parent companies to set prices that their subsidiaries charge without needing to seek an authorisation.

The process of seeking immunity from legal action has also changed.  Businesses may now notify potential resale price maintenance to the ACCC instead of applying for authorisation.  Once conduct is notified, it will be immune from legal action unless the ACCC objects to the notification within 60 days. The option to notify will make it easier for businesses to obtain immunity where resale price maintenance may be pro-competitive.  Notification is simpler and quicker than applying for an authorisation.

  1. Mergers authorisations – no change to informal process and application for authorisations to ACCC

The amendments leave the informal merger clearance process unchanged. This means for the vast majority of mergers or acquisitions where ACCC clearance is sought, there will be no substantive change.

The parties can make application for authorisation of a merger or acquisition to the ACCC.  The right to apply directly to the Australian Competition Tribunal has been removed.

The ACCC can authorise a merger or acquisition if it is satisfied that the merger would not substantially lessen competition, or the merger would result in a net public benefit.

The ACCC has released merger authorisation guidelines for consultation.  Submissions are due by 24 November 2017.

  1. Cartels – joint venture exemption expanded

The cartel provisions have been amended to clarify several aspects, including:

  • The extra-territorial scope of the Australian cartel laws will be narrowed so that only conduct which occurs in trade or commerce within Australia or between Australia and overseas is captured. This means conduct overseas which does not affect trade to, from or within Australia is not caught.
  • The prohibition on output restrictions has been amended to include restrictions on acquisitions.

In respect of the joint venture exemption to the cartel provisions there are a number of key changes, namely:

  • The joint venture exemption now does not require the cartel provision to be contained in a formal contract. This means an informal arrangement can now potentially fit within the joint venture exemption.
  • Joint ventures for the acquisition of goods and services will now be included.
  • For the joint venture exemption to apply, the cartel provision must be necessary for the joint venture, and the joint venture is not carried on for the purpose of substantially lessening competition.

The amendments also increase the burden of proof which a defendant relying on the joint venture exemption must establish to that of the “balance of probabilities”.

  1. Authorisations

Authorisations will now be available for conduct that will not cause any substantial lessening of competition even if no public benefit can be demonstrated. These expand the range of conduct for which authorisations will be made available.

Authorisation will now also be available to mergers and acquisitions as well as non-merger conduct such as misuse of market power and resale price maintenance.

Importantly, the ACCC will be able to grant “safe harbour” class exemptions to provide protection to categories of conduct which the ACCC is satisfied do not raise competition concerns.

The ACCC has released guidelines for authorisation of conduct not related to mergers for consultation.  Submissions are due by 24 November 2017.

  1. Notifications

Notifications for conduct will generally follow the same process and procedure.  The ACCC can revoke a notification if the public benefit will not outweigh the detriment.  In some cases, the ACCC may impose conditions on the notification.

Amendments to the collective bargaining notification process mean that notification can cover future members of the group, as well as covering several counterparties.

  1. Enforcement

The ACCC is now able to use its section 155 powers to investigate breaches of court enforceable undertakings and merger authorisation applications.

A new defence to non-compliance with a section 155 notice to produce documents has been introduced. If a person fails to comply with a notice to produce documents, it is a defence if, after a reasonable search, the person is not aware of the documents.  In determining whether a search is reasonable, relevant factors include the nature and complexity of the matter under investigation, the number of documents involved, and the ease and cost of retrieving documents relative to the company’s resources.

Maximum penalties for non-compliance with section 155 notices have been increased from 12 months imprisonment or a fine of up to 20 penalty units to 2 years imprisonment and a fine of up to 300 penalty units.

  1. Private litigants

Amendments to the CCA will allow private litigants to rely on admissions of fact (in addition to findings of fact) made in ACCC proceedings in a subsequent proceeding for loss or damage. While this may make “coat-tails” litigation easier, it may well have a chilling effect on enforcement, with companies being less likely to admit facts which give a leg up to private litigants.

What now?

As the changes are now in effect, businesses will need to comply with the changes going forward.  Updating policies and procedures, auditing current practices and training relevant staff in any changes are all important.  More detail will be known on some key aspects once the ACCC guidelines are finalised, and we will keep you posted on developments.

Should you need further information or assistance, please don’t hesitate to contact Kathleen Harris or Patrick Dwyer.

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