The Government today released Exposure Draft legislation (Competition and Consumer Amendment (Competition Policy Review) Bill 2016) designed to implement many of the recommendations made as part of the Competition Policy Review (Harper Review) 2014-2015.

Consultation – be quick!

Interested parties have relatively little time to respond to the draft legislation (which runs to and is accompanied by a 90 page explanatory memorandum), with submissions due by 30 September 2016.  In addition to Treasury’s review of the draft legislation, the ACCC today commenced two consultations on draft frameworks for misuse of market power guidelines and concerted practices guidelines. Interested parties have marginally longer to respond to these documents (until 3 October), which are designed to accompany two of the more significant proposed reforms. Oh, and if telecommunications is your thing, the Department of Communication and the Arts released its own parallel discussion paper: ‘Review of the Part XIB telecommunications anti-competitive conduct provisions‘  – submissions due 30 September.

What’s in it?

Briefly, the draft legislation implements most of recommendations in relation to the competition laws that had been promised by the Government (see my Exposure Draft Review page for more details and links to media and commentary).

Misuse of market power

As anticipated, the exposure draft bill introduced an ‘effects test’ into s 46 as recommended by the Harper Panel. Specifically, it provides:

(1) A corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in that or any other market.

(2) Without limiting the matters to which regard may be had in determining for the purposes of subsection (1) whether conduct has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market, regard must be had to the extent to which:

(a) the conduct has the purpose of, or has or would be likely to have the effect of, increasing competition in that market, including by enhancing efficiency, innovation, product quality or price competitiveness in that market; and

(b) the conduct has the purpose of, or has or would be likely to have the effect of, lessening competition in that market, including by preventing, restricting, or deterring the potential for competitive conduct or new entry into that market.

…

Separate provision for predatory pricing (the Birdsville Amendment) has been removed and authorisation has been made available for conduct which might constitute a misuse of market power.

In accordance with the Harper recommendations, the ACCC has released for consultation a framework for guidance on s 46, which includes examples of the sort of conduct it considers will and will not contravene the newly framed provision.

Cartel conduct

Several changes have been made to the cartel laws, including:

• amendment to insert references to ‘trade and commerce’ in s 44ZZRD (definition of cartel conduct) designed to restrict the cartel laws to conduct occurring in trade or commerce within Australia or between Australia and other places;
• broadening of the joint venture exemption beyond mere contractual joint ventures (which was always an unjustifiable limitation) to include arrangements or understandings and extending it to cover joint ventures for the acquisition of goods or services as well as production and/or supply;
• broadening of the existing exemption for vertical trading restrictions to apply to a variety of vertical restrictions and not just those which would constitute exclusive dealing;
• Removing the definition of the word ‘likely’;
• Extending the prohibition on output restrictions to cover the ‘acquisition, or likely acquisition, of goods or services from persons or classes of persons by any or all of the parties to the contract, arrangement or understanding’ (designed to cover the gap left by removing the prohibition on exclusionary provisions)

There is no further ‘simplification’ of the provision as proposed by the Harper Panel.

Anti-competitive agreements, price signalling and exclusionary provisions (primary boycotts)

These provisions have been amended in accordance with the recommendations.  In particular

• The separate price signalling provisions have been repealed;
• Section 45 has been extended to capture anti-competitive concerted practices;
• Removed the separate prohibition on exclusionary provisions (including repealing the definition of exclusionary provisions in s 4D) (see extension definition of cartel conduct relating output restriction designed to cover any resulting gap)

In conjunction with the proposed change to s 45 the ACCC has released for consultation a framework for guidance on concerted practices.

Exclusive Dealing and Third Line Forcing

Exclusive dealing other than third line forcing

The Harper Panel recommended repealing all of s 47 (exclusive dealing) if the recommendation in relation to s 46 was accepted; the reason for this was that any exclusive dealing involving an agreement would be caught by s 46 and unilateral exclusive dealing conduct could be more appropriately dealt with in a reformed s 46.  The Government had only ‘noted’ this recommendation in its initial response, in part because it had not formed a final view on the misuse of market power provision.  The Harper Panel recommended, in the alternative, that s 47 be simplified.  Neither recommendation has made its way into the Exposure Draft bill.

Third line forcing

The Exposure Draft bill does, however, remove the current per se prohibition on third line forcing.

Resale price maintenance

As promised, the bill maintains the current per se prohibition on RPM while making provision for ‘notification’ of RPM conduct.  It also adds an exemption for RPM between related bodies corporate.

Mergers

The Harper Panel recommended combining the current formal notification and authorisation processes for mergers.  The Exposure Draft bill provides for the full repeal of the formal clearance process (which has never been used) and the formal notification process are combined into a single authorisation process which now sits with the ACCC at first instance.

The Harper Panel also proposed that a process be put in place by post-merger evaluations by a new administrative body (it proposed the Australian Council for Competition Policy).  Although the Government accepted this in principle, there is no provision for the establishment of a new body or ex post merger review in the current Exposure Draft; it is possible that may follow down the track.

Access

In addition to recommendations in the Harper Review, the Productivity Commission made recommendations about access in its 2013 report on the National Access Regime.  The Government accepted these, rather than the Harper, recommendations in relation to access.

The access regime in Part IIIA is amended to:

• clarify the declaration criteria;
• provide that the default position where a Minister does not respond within 60 days to a declaration recommendation is that they will be deemed to have made a decision in accordance with that recommendation; (s 44HA) and
• clarify the scope of a determination made by the Commission to extend a facility in an access dispute

Declaration criteria

A new meaning of declaration criteria is inserted into s 44CA of the Act and the current s 44H is repealed and substituted with:

‘The designated Minister cannot declare a service unless he or she is satisfied of all of the declaration criteria for the service’

The changes to the criteria are:

(a) provides that ‘that access (or increased access) to the service, on reasonable terms and conditions, following a declaration of the service would promote a material increase in competition in at least one market (whether or not in Australia), other than the market for the service’  (the EM states that this is intended to restore the pre-2006 interpretation of the criterion)

(b) reference to ‘uneconomical for anyone to develop another facility’ is replaced with ‘the facility … could meet the total foreseeable demand in the market at the least cost’ (emphasis added) (the EM notes that this is intended to ‘refocus the test to a ‘natural monopoly’ test instead of a ‘private profitability’ test)

(c) is unchanged

(d) is added – requiring that access to the service on reasonable terms and conditions would promote the public interest (sub-section (f) currently refers to the access not being contrary to the public interest). In considering public interest the Council or Minister may have regard to the effect declaration would have on investment and administration and compliance costs.

Default position where Minister has not published decision

Section 44HA has been amended to provide that where a Minister has not published their decision in response to a declaration recommendation with 60 days, they will be taken to have made a decision and published it in accordance with the declaration recommendation.

Scope of ACCC determination to extend facility in access dispute

The Exposure Draft Bill also clarifies that the ACCC can make a determination in an access dispute requiring the service provider to extend the facility, including by increasing capacity.  A new subsection 44V(2A) provides:

(2A) Without limiting paragraph (2)(d), a requirement referred to in that paragraph may do either or both of the following:

(a) require the provider to expand the capacity of the facility;

(b) require the provider to expand the geographical reach of the facility.

Authorisation

The current authorisation process is clunky and can require multiple authorisations for the same conduct.  The Exposure Draft bill simplifies this process, allowing the Commission to authorise otherwise prohibited conduct) would either not have the effect or likely effect of substantially lessening competition or, if it would, it would be likely to result in a benefit to the public that would outweigh detriment that would or would be likely to result from the conduct. For per se prohibited conduct the public benefit test must be satisfied before authorisation is granted.  In the case of conduct that is otherwise prohibited per se (RPM, cartel conduct) it is not sufficient that the ACCC consider the conduct would not have the effect or likely effect of SLC (the explanatory memorandum notes that ); in such cases the public benefit limb must be satisfied.  The EM states that this is necessary or conduct prohibited per se would be able to be engaged in if it did not SLC (although it does not go on to explain why that would be a bad thing)

The Exposure Draft Bill also provides the ACCC with a class exemption power (the Harper Panel had recommended ‘block exemption’ powers) – it’s not clear why the terminology has changed but the substance appears in accordance with the recommendations.

Collective bargaining and boycotts

The Exposure Draft Bill amends the collective bargaining notification rules to allow greater flexibility by allowing notification to extend to people who may join a collective bargaining group at a later date. Power is also given to the ACCC to impose conditions on collective bargaining notifications where it believes it would otherwise have grounds to object to the notification.

In relation to collective boycotts, if a person notifies the Commission of collective boycott activity it must cease the activity when the Commission gives them a stop notice, which it may only do if the conduct has resulted in a serious detriment to the public or where such detriment is imminent.

Secondary boycotts

The maximum penalty for secondary boycotts has been increased to align with penalties for other competition law breaches.

Definition of competition

In accordance with the Harper recommendations the definition of competition is section 4 is extended to ensure it includes competition from goods and services that are imported or ‘capable of being’ imported.

Covenants affecting competition

The Exposure Draft Bill inserts a definition of ‘contract’ and ‘party, to an arrangement that is a covenant’, which enables it to repeal duplicate or redundant provisions.  Contract is defined in s 4(1) as ‘includes a covenant’ and ‘party, to a contract that is a covenant’ is defined as ‘includes a person bound by, or entitled to the benefit of, the covenant.

Private actions

The Exposure Draft Bill extends s 83 of the Act to enable admissions of fact ‘made by a person’ to be used in other proceedings against that person; currently only findings of fact made by a court may be used in that way.

Section 155 Power to obtain information, documents and evidence

In accordance with the Harper recommendation (rec 40) s 155 is extended to cover the investigation of alleged contraventions of court-enforceable undertakings.  In addition, a ‘reasonable search’ defence is introduced for the offence of failing to comply with s 155 and the fine for non-compliance is increased (to 100 penalty units or 2 years imprisonment for an individual).

What’s not in it?

Extraterritoriality (sort of)

There’s no change to s 5 in the draft legislation.  The Harper Panel had recommended that section 5 be amended to remove the requirement that the contravening firm have a ‘connection with Australia in the nature of residence, incorporation or business presence and to remove the requirement for private parties to seek ministerial consent before relying on extra-territorial conduct in private competition law actions. Instead, the competition law should apply to overseas conduct insofar as the conduct relates to trade or commerce within Australia or between Australia and places outside Australia.’

• Connection with Australia: This is not surprising; the Government indicated it did not support removing the requirement for the contravening firm to have a ‘connection with Australia in the nature of residence, incorporation or business presence’.  The trade or commerce reference has been introduced into the cartel provisions to ensure that they apply ‘to cartel conduct occurring in trade or commerce within Australia, or between Australia and places outside Australia’, but not broadly into s 5 as the extraterritorial ‘connector’ as recommended (rec 26).
• Ministerial consent: The Government supported this recommendation and had previously introduced a bill (the Competition and Consumer Amendment (Deregulatory and Other Measures) Bill 2015) which would have removed this requirement; this bill lapsed at prorogation in April this year and appears not to be proceeding at this stage.  It is not clear if it will be revolved; if so it would explain the absence of this amendment from the bill.

Simplification

There is some ‘simplification’ in the Bill – for example:

• the definition of contract and associated removal of redundant and duplicate references to covenant
• the consolidation of the authorisation processes
• the removal of the separate prohibition on exclusionary provisions
• repeal of the un-litigated Birdsville amendment (s 46) and price signalling laws (Division 1A)

But beyond that there’s not a great deal of simplification going on.  Notably, exclusive dealing (other than third line forcing) which the Harper Panel recommended repealing or simplifying in a significant way, remains untouched. The Harper Panel had also recommended greater simplification of the cartel provisions.  It’s not clear whether these reforms are on the radar for the future.

Administration

None of the recommendations in relation to changes to structure of the administrative bodies or creation of new bodies has made its way into this Exposure Draft Bill; it’s not clear whether there will be subsequent legislation designed to address this following consultation with the states and territories, with this bill left largely to implementing substantive legal changes.

Crown extensions

The Exposure Draft Bill does not extend the competition law provisions to apply to the Crown insofar as it undertakes activity in trade or commerce. Currently the Crown is only captured insofar as it carries on a business.  The Government indicated it would consult further with the states and territories on this issue; it is not surprising – but it is disappointing – that it does not form part of the Exposure Draft Bill.

Policy reforms

The Exposure Draft (perhaps not surprisingly) focuses on the recommendations relating to the competition laws and not broader policy issues.  Many of these are proceeding via separate inquiries and may result in future legislation.  For example, the Harper Panel recommended repeal of the intellectual property exception in s 51(3) and parallel import restrictions on books and the Government has indicated it will have regard to the Productivity Commission findings on these matters in its current IP review (the PC’s draft report also recommended repeal of the IP exception).

Find out more

For more detail, links to the primary material and related documents and updated links to media and other reports on the exposure draft bill and the ACCC’s consultation on its MMP and concerted practice guidance see my Exposure Draft Bill Consultation Page.

Julie Clarke