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Trade Practices Act 1974 (Cth)

Section 46
Misuse of market power

The provision

 (1) A corporation that has a substantial degree of power in a market shall not take advantage of that power in that or any other market for the purpose of:

(a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;

(b) preventing the entry of a person into that or any other market; or

(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

(1AAA) If a corporation supplies goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying the goods or services, the corporation may contravene subsection (1) even if the corporation cannot, and might not ever be able to, recoup losses incurred by supplying the goods or services.

(1AA) A corporation that has a substantial share of a market must not supply, or offer to supply, goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying such goods or services, for the purpose of:

(a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market; or

(b) preventing the entry of a person into that or any other market; or

(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

(1AB) For the purposes of subsection (1AA), without limiting the matters to which the Court may have regard for the purpose of determining whether a corporation has a substantial share of a market, the Court may have regard to the number and size of the competitors of the corporation in the market.

(1A) For the purposes of subsections (1) and (1AA):

(a) the reference in paragraphs (1)(a) and (1AA)(a) to a competitor includes a reference to competitors generally, or to a particular class or classes of competitors; and

(b) the reference in paragraphs (1)(b) and (c) and (1AA)(b) and (c) to a person includes a reference to persons generally, or to a particular class or classes of persons.

(2) If:

(a) a body corporate that is related to a corporation has, or 2 or more bodies corporate each of which is related to the one corporation together have, a substantial degree of power in a market; or

(b) a corporation and a body corporate that is, or a corporation and 2 or more bodies corporate each of which is, related to that corporation, together have a substantial degree of power in a market;

the corporation shall be taken for the purposes of this section to have a substantial degree of power in that market.

(3) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the court shall have regard to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of:

(a) competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or

(b) persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market.

(3A) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the court may have regard to the power the body corporate or bodies corporate has or have in that market that results from:

(a) any contracts, arrangements or understandings, or proposed contracts, arrangements or understandings, that the body corporate or bodies corporate has or have, or may have, with another party or other parties; and

(b) any covenants, or proposed covenants, that the body corporate or bodies corporate is or are, or would be, bound by or entitled to the benefit of.

(3B) Subsections (3) and (3A) do not, by implication, limit the matters to which regard may be had in determining, for the purposes of this section, the degree of power that a body corporate or bodies corporate has or have in a market.

(3C) For the purposes of this section, without limiting the matters to which the court may have regard for the purpose of determining whether a body corporate has a substantial degree of power in a market, a body corporate may have a substantial degree of power in a market even though:

(a) the body corporate does not substantially control the market; or

(b) the body corporate does not have absolute freedom from constraint by the conduct of:

(i) competitors, or potential competitors, of the body corporate in that market; or

(ii) persons to whom or from whom the body corporate supplies or acquires goods or services in that market.

(3D) To avoid doubt, for the purposes of this section, more than 1 corporation may have a substantial degree of power in a market.

(4) In this section:

(a) a reference to power is a reference to market power;

(b) a reference to a market is a reference to a market for goods or services; and

(c) a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, in that market either as a supplier or as an acquirer of goods or services in that market.

(4A) Without limiting the matters to which the court may have regard for the purpose of determining whether a corporation has contravened subsection (1), the court may have regard to:

(a) any conduct of the corporation that consisted of supplying goods or services for a sustained period at a price that was less than the relevant cost to the corporation of supplying such goods or services; and

(b) the reasons for that conduct.

(5) Without extending by implication the meaning of subsection (1), a corporation shall not be taken to contravene that subsection by reason only that it acquires plant or equipment.

(6) This section does not prevent a corporation from engaging in conduct that does not constitute a contravention of any of the following sections, namely, sections 45, 45B, 47, 49 and 50, by reason that an authorization or clearance is in force or by reason of the operation of subsection 45(8A) or section 93.

(6A) In determining for the purposes of this section whether, by engaging in conduct, a corporation has taken advantage of its substantial degree of power in a market, the court may have regard to any or all of the following:

(a) whether the conduct was materially facilitated by the corporation’s substantial degree of power in the market;

(b) whether the corporation engaged in the conduct in reliance on its substantial degree of power in the market;

(c) whether it is likely that the corporation would have engaged in the conduct if it did not have a substantial degree of power in the market;

(d) whether the conduct is otherwise related to the corporation’s substantial degree of power in the market.

This subsection does not limit the matters to which the court may have regard.

(7) Without in any way limiting the manner in which the purpose of a person may be established for the purposes of any other provision of this Act, a corporation may be taken to have taken advantage of its power for a purpose referred to in subsection (1) notwithstanding that, after all the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the corporation or of any other person or from other relevant circumstances.

Legislative history

Substituted by Trade Practices Amendment Act 1977 (Act 81 of 1977)

  • References was to a 'corporation that is in a position substantially to control a market'

Amended Trade Practices Revision Act 1986 (Act 17 of 1986)

  • References was from a 'corporation that is in a position substantially to control a market' to a 'corporation that has a substantial degree of power in a market'

Amended Trade Practices Legislation Amendment Act 1992 (Act 222 of 1992)

  • Inserted subsection 1A

Amended Trade Practices Legislation Amendment (No 1) Act 2006 (Act 131 of 2006)

Amended: Trade Practices Legislation Amendment (No 1) Act 2007 (Act 159 of 2007)

  • Inserted controversial predatory pricing provisions and sections (3A)-(3D) regading the determination of market power.

Amended: Trade Practices Legislation Amendment Act 2008

Commentary

Aim of provision

In Queensland Wire the High Court suggested that eh purpose of the provision was to protect the competitive process rather than particular competitors. This reasoning has been followed in subsequent decisions.

In Melway, the majority of the High Court stated: ‘Section 46 aims to promote competition, not the private interest of particular persons or corporations.’

'Substantial market power'

Until 1986 the threshold was whether or not a corporation was in a position to substantially control a market. The current 'market power' test is less onerous than the 'susbtantiall control' test. See, for example, ACCC v Baxter Healthcare Pty Ltd [2008] FCAFC 141 by Justice Gyles who noted [at 378] 'A substantial degree of power in a market is not the equivalent of monopoly power.  Indeed, the Act was deliberately amended in 1986 to lower the threshold.'

Additional guidance for determining when a corporation has market power was added by Trade Practices Legislation Amendment Act (No 1) 2007 , which inserted sections (3A)-(3D) and also ss (4A) which allows sustained below cost pricing to be considered.

Taking advantage

The 'taking advantage' element has proved one of the most controversial. In Qld Wire the element was essentially interpreted to mean 'use', with Dawson J observing that 'The words "take advantage of" do not have moral overtones in the context of s. 46' and that BHP took advantage of MP because 'It used power in a manner made possible only by the absence of competitive conditions'. If the market was competitive the refusal would have ‘eroded its position in the steel products market'

Subsequent cases have taken a stricter approach. There is currently some debate over whether a 'could' or 'would' test now applies in relation to s 46. The 'could' test provides that if the corporation COULD have acted in the manner it did without substantial market power then it cannot be said to be 'taking advantage' of market power by acting in that way. The 'would' test provides that if the corporation WOULD not have acted in the manner it did in the absence of substantial market pwoer then it will be held to have taken advantage of that power. Consequently, the 'would' test is more inclusive than the 'could' test as it takes into consdieration rational business practice.

In Melway the majority of the High Court appeared to apply the 'could' test:

bearing in mind that the refusal to supply the respondent was only a manifestation of Melway's distributorship system, the real question was whether, without its market power, Melway could have maintained its distributorship system, or at least that part of it that gave distributors exclusive rights in relation to specified segments of the retail market. (my emphasis) 

Justice Kirby dissented on this point, noting:

... in Queensland Wire, whatever else was agreed or disagreed, this Court unanimously held that the proper legal construction of s 46 of the Act was that "take advantage of" simply means "use". ... … To the extent that this Court now retreats from its holding in Queensland Wire that the phrase connotes no more than "use" of market position, it will encourage the restoration of a point of distinction which will weaken the effectiveness of s 46. …

This issue came up for consideration again in Rural Press. The Court again applied the 'could' test, finding no contravention of s 46. In this case the Full Federal Court concluded there was no taking advantage of market power because:

... though [Rural Press and Bridge] had the necessary market power and the necessary purpose, they had not taken advantage of their power in the Murray Bridge regional newspaper market but rather had taken advantage of their access to a printing press in Murray Bridge and to the necessary administrative and professional structure to publish a competing newspaper. Rural Press and Bridge could have credibly threatened to enter the Riverland market, and could have actually entered it, regardless of whether they had a substantial degree of power in the Murray Bridge regional newspaper market.

The majority of the High Court held, on this point:

Gummow, Hayne and Heydon JJ: The conduct of "taking advantage of" a thing is not identical with the conduct of protecting that thing. To reason that Rural Press and Bridge took advantage of market power because they would have been unlikely to have engaged in the conduct without the "commercial rationale" – the purpose – of protecting their market power is to confound purpose and taking advantage. If a firm with market power has a purpose of protecting it, and a choice of methods by which to do so, one of which involves power distinct from the market power and one of which does not, choice of the method distinct from the market power will prevent a contravention of s 46(1) from occurring even if choice of the other method will entail it.

The Commission's criticism of the Full Federal Court for asking whether Rural Press and Bridge "could" engage in the same conduct in the absence of market power must be rejected. ... 

The Commission failed to show that the conduct of Rural Press and Bridge was materially facilitated by the market power in giving the threats a significance they would not have had without it.  What gave those threats significance was something distinct from market power, namely their material and organisational assets.  [emphasis added]

Justice Kirby dissented again, noting:

The suggestion that the application by Rural Press and Bridge of their "market power" was causally irrelevant to the swift retreat of Waikerie seems, with every respect, to border on the fanciful. ...

The conditional threat from Rural Press and Bridge extinguished any chance of competition. It adversely affected consumers and the competitive process in terms of availability of choice, as it forced the withdrawal of a competitor and its product from the market. Rural Press and Bridge did not, as they were entitled to do, compete in the market on the basis of the price or quality of their product. Rather, they threatened to retaliate in a way that was a clear contravention of s 46. With respect, the result of the analysis in the joint reasons in this Court does not protect or promote competition or the competitive process. It stifles it.

A trilogy and the doctrine of innocent coincidence:
This is the third recent decision of this Court (Melway and Boral Besser Masonry Ltd ... being the other two) in which a majority has adopted an unduly narrow view of s 46 of the Act. In effect, it has held, in each case, that the established large degree of market power enjoyed by the impugned corporation was merely incidental or coincidental to the anti-competitive consequences found to have occurred. Notwithstanding the proof of market power, the Court has held that the impugned corporations did not directly or indirectly "take advantage" of that power to the disadvantage of competition in the market.

In my view, the approach taken by the majority is insufficiently attentive to the object of the Act to protect and uphold market competition. It is unduly protective of the depredations of the corporations concerned. It is unrealistic, bordering on ethereal, when the corporate conduct is viewed in its commercial and practical setting. The outcome cripples the effectiveness of s 46 of the Act. It undermines this Court's earlier and more realistic decision in Queensland Wire. The victims are Australian consumers and the competitors who seek to engage in competitive conduct in a naive faith in the protection of the Act. Section 46 might just as well not have been enacted for cases like these where its operation is sorely needed to achieve the purposes of the Act. Judicial lightning strikes thrice. A novel doctrine of innocent coincidence prevails. Effective anti-competitive threats can be made without the redress which s 46 appears to promise. Once again I dissent."

In 2008 amendments were made to s 46 by the Trade Practices Legislation AmendmentAct 2008 which appear to make it easier to establish the 'taking advantage' element (although some suggest it is just intended to codify existing legislative developments). Section 46(6A) now provides that the court may consider:

(a) whether conduct was materially facilitated by the market power [this appaers to favour a 'would' over a 'could' approach

(b) whether the corporation relied on the market power when engaging in the conduct

(c) whether it was likely the corporation would have engaged in the conduct if they did not have SMP [again, this appears a direct response to the 'could' test adopted in Melway and appears to prefer a 'would' approach]

(d) whether the conduct is otherwise related to the SMP

There is not yet any case law on the new provision.

Predatory pricing

In 2007 the Trade Practices Legislation Amendment Act (No 1) 2007 introduced a new s 46(1AA) (amongst other things) targetting predatory pricing. It prohibits a corporation having substantial market share supplying goods or services below cost for a sustained period for one of the three prohibited purposes (the same prohibited purposes as for s 46(1). This provision has not yet been used and has been widely criticised; the Trade Practices Legislation Amendment Bill 2008 originally proposed significant amendments to s 46(1AA) including replacing 'market share' with 'market power' and adding a requirement that the party having market power 'take advantage' of that power for a prohibited purpose. The Senate blocked these amendments and the Bill passed in amended form without these originally proposed amendments to s 46(1AA).

This amendment has proved highly controversial. See, for example:

Cases

Misuse of market power

Articles

Misuse of market power

Predatory pricing