02 Dec 2016

Get ready now for the misuse of market power reforms

Changes to Australia's misuse of market power laws are closer, with the introduction of the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 into Federal Parliament.

The Bill represents the Government's first formal step to implement the competition reforms recommended by the Harper Competition Policy Review.  It also follows extensive consultation undertaken by the Government on various options to implement the Harper recommendations to amend section 46 and, more recently, on an exposure draft of amendments proposed to be made to the competition provisions of the Competition and Consumer Act 2010 (Cth) (CCA).

Although it will not become law until next year, businesses should begin reviewing their conduct to ensure they will not fall foul of the amended section 46.

Changes from the current section 46

The revised section 46 will prohibit a corporation with market power engaging in conduct that has the purpose or effect of substantially lessening competition in a market in which the firm with market power operates.

The new section 46 represents a significant change to the misuse of market power prohibition.  The new provision:

  • introduces, for the first time, an "effects test" into section 46.  Conduct that has or is likely to have the effect of substantially lessening competition (and no longer just such a purpose) will now be caught. 
  • omits the "take advantage" element of section 46.  Courts will no longer be required to pose the question: "how would the firm have acted if it lacked its market power?" 
  • removes the "Birdsville amendments", which were made in 2007 to prohibit firms with a substantial market share of the market engaging in below cost pricing for a sustained period of time.   

One important change from earlier drafts is that section 46 will be limited to prohibiting a firm with market power engaging in conduct that has an anticompetitive purpose or effect only in those markets in which the firm supplies or acquires goods or services (or is likely to do so), rather than the much broader notion of "any other market".

Review your conduct to avoid breaching the new misuse of market power reforms   

Many firms are likely to already satisfy the test of possessing a substantial degree of power in a market. 

However, unlike the current state of the law regarding section 46 of the CCA, firms, for the first time in Australia, will now need to carefully consider whether the conduct they engage in, or propose to engage in, could be said:

  • to have the purpose;
  • have the effect; or
  • or be likely to have the effect

of lessening competition.

The ACCC has recently provided some guidance as to what it considers may or may not raise issues under the new section 46.  While the circumstances of each case will be relevant, the ACCC has indicated that:

  • Conduct likely to raise concerns under the new section 46 includes:
    • a refusal to supply an essential input;
    • land banking;
    • predatory pricing; and
    • bundling a competitive product with a monopoly product. 
  • Conduct unlikely to raise concerns under the new section 46 includes:
    • research and development;
    • standardised or national pricing by large retail chains;
    • a price war; and
    • investing in new production technology to increase efficiency. 

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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.