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24 Dec 2015

Misuse of market power: will 2016 be the year for a new law?

by Kirsten Webb, Mihkel Wilding

Submissions are due by Friday 12 February 2016, after which the Government will announce its final position by the end of March 2016.

The Harper Review is the most comprehensive review into Australia's competition policies and laws since the Hilmer Review 22 years ago. One aspect of the Harper Review which has attracted controversy concerns the recommendation to broaden the misuse of market power provisions in section 46 of the Competition and Consumer Act 2010 (Cth) to capture conduct which has the purpose or effect of substantially lessening competition.

In its response, the Federal Government indicated that it wished to consult further on reform options. It has now acted on that by releasing a Discussion Paper inviting stakeholders to provide six options for reform of section 46. By publishing these options the Government has stated that it would like to reinvigorate the debate on section 46 rather than continuing to analyse the provision in binary terms of full-Harper or no-Harper.

Current position on the misuse of market power

In its current form section 46 prohibits corporations that have a substantial degree of power in a market from taking advantage of that power for the purpose of eliminating or substantially damaging a competitor, preventing the entry of a person into a market or deterring or preventing a person from engaging in competitive conduct.

Section 46 has been considered by the full Federal Court or the High Court on seven occasions only in the last 15 years. The provision has been subject to 11 independent parliamentary reviews since 1976, which have each sparked significant debate concerning the effectiveness and scope of the provision.

In their submissions to the Harper Review, stakeholders again expressed concern that the current misuse of market power provisions may not be effective in preventing anti-competitive behaviour.

What change does the Harper Review recommend?

The Harper Review has recommended the following changes to section 46:

  • removing the "take advantage" test which has been an impediment to successful ACCC action over the years;
  • expanding the "purpose" test to a "purpose, effect or likely effect" test, so that conduct with anti-competitive effects is caught (as in the EU and other jurisdictions);
  • ensuring that the focus is damage to the competitive process through a competition test, rather than damage to a particular competitor;
  • extending the ACCC authorisation provisions to include conduct under section 46; and
  • issuing ACCC guidelines to assist business to understand the ACCC's approach to the provision.

Six options in the Government's Discussion Paper on section 46

In the Discussion Paper, the Government has proposed six options.

 

Proposed Option

Effect of the Option

Option A

Make no amendment to the current provision

The law as outlined above would remain unchanged.

Option B

Amend the existing provision by removing the requirement of to "take advantage of".

This option would remove the current defence available to businesses if they can demonstrate that other firms without a substantial degree of market power would also engage in that conduct.

Section 46 would be simplified because other provisions attempting to define "taking advantage" could be repealed.

No "effects test" ‒ stakeholders submit this could deter competitive behaviour.

Option C

Amend the existing provision by removing the words "take advantage", introducing a "purpose of substantially lessening competition" test, and making ACCC authorisations and guidelines available.

 

Introducing the "purpose of substantially lessening competition" test would refocus the prohibition on the competitive process. Conduct would be assessed by asking whether it is harmful to competition rather than certain competitors.

May initially cause some uncertainty. However, any uncertainty would potentially be mitigated by the availability of ACCC authorisation and guidelines.

As with Option B, no "effects test".

Option D

Amend the existing provision by removing the words "take advantage", introducing a "purpose of substantially lessening competition test", including mandatory factors that the Court must take into account when determining if there is a breach, and making ACCC authorisation and guidelines available.

Introducing mandatory factors may assist in determining how the provision should be applied. The Harper Review was of the view that a "substantially lessening competition test" would refocus the prohibition on the competitive process.

Under this option, businesses would have to consider all of the factors before making business decisions including whether to apply for authorisation. Some stakeholders have suggested that this option may result in increased costs. However, ACCC guidelines would help businesses to understand how the provision is supposed to operate.

As with Options C, no "effects test".

Option E

Amend the existing provision by removing the words "take advantage", introducing the test of "purpose, effect or likely effect of substantially lessening competition ", and making ACCC authorisation and guidelines available.

Expanding the provision to include an "effects test" is designed to capture conduct which has negative economic effects.

Like other CCA provisions with a "substantially lessening competition" test, this option would not include mandatory factors for the courts to consider.

Option F

Amend the existing provision by making the full set of changes recommended by the Harper Review.

Significant expansion of the law by the inclusion of an "effect test". However, larger businesses could be deterred from engaging in rigorous competitive conduct.

Final position to be announced by 31 March 2016

The Government encourages stakeholders' opinions on these options. Submissions are due by Friday 12 February 2016, after which the Government will announce its final position by the end of March 2016.

  

Thanks to Annella Cox and Gabrielle Sheehan for their help with this article.

 

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.