Harper Competition Law Report - Misuse of Market Power
A discussion note on the Final Report of the Harper Competition Policy Review, April 2015
By Mick Coleman and Natasha Wilson
"The panel considers that section 46 is deficient..." - "The Panel's View", Harper p 347
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Harper's headlines on misuse of market power
In its Final Report on the Competition Policy Review, the Harper Panel considers that –
1.1
1.2
1.3
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section 46 should be re-framed to make two significant amendments to the current law:
a.
remove the requirement to show a corporation has ‘taken advantage’ of its market power, as an element of proving misuse; and
b.
alter the 'purpose' test to a 'purpose or effect' test, consistent with many other competition law
provisions: does the conduct have the purpose, effect or likely effect of substantially lessesing
competition?
In making this assessment, a court should have regard to:
a.
the extent to which the conduct has the purpose, effect or likely effect of increasing competition in
the market, including by enhancing efficiency, innovation, product quality or price competitiveness; and
b.
the extent to which the conduct has the purpose, effect or likely effect of lessening competition in
the market, including by preventing, restricting or deterring the potential for competitive conduct in a
market or new entry into the market.
Authorisation should be available for conduct that might otherwise breach section 46.
Starting Point - the current state of play
Context - the Harper Panel's Review
2.1 In early 2014 the Federal Minister for Small Business, Hon Bruce Billson MP, appointed a panel chaired by Prof
Ian Harper to conduct a broad review of Australia’s competition landscape.
2.2
After conducting hearings, taking submissions and considering responses to its October 2014 draft report,
the Harper Panel submitted its 550 page Final Report in March 2015. The report encompasses not only
competition laws, but also competition policy and institutions.
2.3
Unilateral competitive conduct - misuse of market power, price discrimination and unconscionable conduct are dealt with in Part 4-Competition Law, over 25 pages. The only recommendations for change are to the s46
test for misuse of market power, but these changes are significant and have attracted plenty of interest from
companies concerned that ordinary (and successful) commercial conduct could become illegal.
The current position under the Competition and Consumer Act 2010 (CCA)
2.4
Section 46 of the CCA prohibits corporations that have a substantial degree of market power from taking
advantage of that power for a proscribed purpose - 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.
2.5
Section 46 has been the subject of a large number of independent reviews and parliamentary inquiries.
Reformers commonly propose that the prohibition should be expanded to include an ‘effects’ tests - a firm
with substantial market power would be prohibited from conduct whose effect is anti-competitive.
2.6
Most reviews have decided against, for fear that measuring effects would constrain not just anti-competitive
unilateral behaviour but vigorous competitive conduct.
2.7
A broadly accepted difficulty with section 46 is the counterfactual test for “taking advantage” of market power
– requiring the ACCC to demonstrate that the firm would not have engaged in the conduct in the absence
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of market power. The test is not only an economist’s picnic as an exercise in hypotheticals, but mis-directed
in that conduct such as exclusive dealing, loss-leader pricing and cross-subsidisation can in fact be rationally
undertaken by firms without market power (and this might be of little concern).
2.8
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Another anomaly is the s46 measurement of impact to a “competitor” as distinct from the more accepted
measure of impact to “competition” that is the major concern of CCA Part IV.
Panel findings and recommendations
We’ve ranked the Panel’s misuse of market power pronouncements in order of significance. Opinions may differ.
1.
Effects test – in what would be a major shift in Australian competition law, the Panel proposes that section 46 be
re-framed to prohibit a corporation that has a substantial degree of power in a market from engaging in conduct
if the conduct has the purpose, effect or likely effect of substantially lessening competition in that or any other
market. This proposed test is consistent with those found in sections 45 (anti-competitive agreements), 47
(exclusive dealing) and 50 (mergers) of the CCA.
2.
No more taking advantage – the Panel gives solace to the regulators, advisers and courts who have been baffled
by the counterfactual economic test for “taking advantage” - whether a company with market power would
behave the same way even if it did not have market power. This limb will be abandoned and largely unmourned.
3.
Accentuate the positive - while section 46 focuses on behaviour affecting a competitor, there is little chance
of a positive impact needing to be considered. Adjusting the test to effect on competition raises the novel
question whether conduct could have a positive impact.
The Panel agrees with the Law Council of Australia’s proposal that the court should have regard to the extent to
which the conduct:
a.
positively increases competition in a market, including by enhancing efficiency, innovation, product
quality or price competitiveness;
weighed against the extent to which it …
b.
lessens competition in a market, including by preventing, restricting or deterring the potential for
competitive conduct in a market or new entry into the market.
4.
Farewell to Birdsville – since 2007 a number of incremental amendments have attempted to beef up section
46, best known being the “Birdsville amendment” prepared in that Queensland town by Sen Barnaby Joyce and
friends. The Panel somewhat tersely notes that once changes are made, amendments introduced since 2007
would be unnecessary and should be repealed.
5.
Authorisation – the Panel considers that companies nervous about a section 46 breach should shelter in
the same crowded safe harbour available for other types of conduct, ie authorisation under section 88. This
pathway has potential, but we rank it low because a business seems less likely to go through an authorisation
process for its own go-to-market conduct than for more readily evidenced bilateral dealings.
6.
ACCC Guidelines – the Panel recommends the ACCC consult business, consumers and lawyers, and issue
guidelines on the new effects test, before the amendment takes effect.
7.
Everyone’s Telstra now – for one Australian company, an effects test is familiar territory. Since 1997, section
151AJ of the CCA has prevented a telecommunications carrier with substantial power in a telecoms market –
say, Telstra - from taking advantage of it with the effect of substantially lessening competition in any telecoms
market. The Panel thinks dragging the rest of the economy into line with Telstra obviates the need for such
special treatment. To be seen.
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Implications for Australian Businesses
4.1
Some commentators have bemoaned (or quietly celebrated) the extra work that will be required of economists,
market analysts and lawyers to assess the competitive effect of every bright idea, price adjustment and killer app
a company wants to bring to market.
4.2
We say, in our experience, companies with substantial market power are well placed to assess how their conduct
will affect a market.
4.3
Already, an anti-competitive purpose can be inferred from conduct, thus business processes are in place to
assess market impact and reduce the risk of illegitimate purpose. These will now be augmented with an effects
assessment - the positive impact of a product versus resulting lessening of competition.
4.4
It is difficult to imagine that many companies with an innovative, competitor-damaging product will hesitate to
introduce it for fear it will be too successful, leading to prosecution for substantial lessening of competition.
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4.5
The more significant shift would occur if the ACCC uses the new section 46 to prop up less successful
businesses, by deterring market leaders from engaging in successful business behaviour. The availability of
the effects test broadens the existing avenue for political and regulatory pressure. Vigorous argument can be
expected on the weighting of pro-competitive innovative dealings against loss of competition due to business
failure.
4.6
Businesses should keep a close eye on the explanatory memorandum, public commentary, the ACCC Guidelines
and other lead indicators of how the ACCC will approach section 46.
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Next Steps
From the Minister’s press release of 31 March 2015 welcoming the Report Before any decisions are taken on implementation, our Government intends to consult with industry and
consumers. I will not rush into making changes before I have considered the implications and a range of
implementation options. The reform process must be staged, consultative and collaborative and deliver real
improvements to our competition framework for the benefit of Australians.
Submissions in response close on 26 May. The press release flags a Government response “later in the year”, which
means legislation embodying Harper’s recommendations should proceed in 2016.
A link to the report and the invitation to respond can be found on the Treasury website here.
Mills Oakley is a leading Australian law firm. Our Corporate Advisory group can assist with submissions, advisory and
transactional work for companies affected by Australia’s competition law framework.
For more information, please contact:
Mick Coleman
Special Counsel
T: +61 3 9605 0060
E: [email protected]
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