Harper Reforms and new misuse of market power prohibitions take effect – transcript

Ross Zaurrini (RZ): Hello everyone, and welcome to the Ashurst competition team's short podcast on the Commonwealth Parliament's long awaited passage of the Competition Policy Review Bill. My name is Ross Zaurrini, (and I am a) Partner in the Ashurst competition team in Sydney, and I'm here with Alyssa Phillips 

Alyssa Phillips (AP): And I'm a Partner in the Ashurst competition team in Brisbane.

RZ: It's now three weeks since the Bill was passed, and if you haven't yet caught up with the news or you haven't had a chance to read up on any of the detail of the Bill, we thought it might be useful to touch very briefly on some of the highlights, particularly because, with very little notice at all, the new laws, together with the amendments to the misuse of market power prohibition, which were contained in a separate Bill passed by Parliament earlier this year, have now come into effect from 6 November 2017 following proclamation by the Governor-General.

RZ: Now Alyssa, unfortunately in the time available we can't cover all of the changes in the Bill but we can certainly focus on the highlights and we will, just in the next few minutes, cover the changes to:

• concerted practices;
• joint ventures;
• third line forcing;
• mergers; and
• access under Part IIIA.

Introduction of a new prohibition on "concerted practices" (1:26)

RZ: Starting then with "concerted practices", the Bill introduces a new prohibition on a corporation engaging in a "concerted practice" which has the purpose, effect or likely effect of substantially lessening competition. Now "concerted practices" are not defined in the legislation, and that does lead to a certain level of uncertainty and ambiguity as to how the new provision might apply. But we know from the explanatory memorandum (to the Bill) that a "concerted practice" is likely to be interpreted as any form of cooperation between two or more firms, or people, or conduct that would be likely to establish such cooperation where the parties are proposing to substitute cooperation for the uncertainty of competition.

RZ: Now the explanatory memorandum to the Bill points us to European case law as being of some assistance in understanding the scope of the new prohibition. But the fact of the matter is, that European case law on "concerted practices", is itself, unsettled. For example, questions arise like: does there need to be regular contact between two parties for it to be a "concerted practice"? What level of reciprocity between two parties is required for conduct to be a "concerted practice"?

RZ: Now, the Commission has sought to address some of that uncertainty by issuing 'Interim Guidelines on concerted practices' and they've called for comments on those guidelines by 24 November 2017. Those guidelines are to some extent helpful, but of course, as is the case with most guidelines, they can only tend to deal with the relatively easy cases – perhaps those about which we are likely to already know the answer. What is really going to be the key for clients is understanding how this new prohibition on "concerted practices" might apply in the really difficult or potentially ambiguous circumstances.

AP: Certainly a good time, Ross, for companies to take stock of their operations and think about whether there are areas of potential exposure under the new "concerted practices" prohibition and particularly, in relation to regular information sharing or contact with competitors that previously would have fallen short of the existing cartel provisions.

RZ: The Commission has also issued 'Interim Guidelines on misuse of market power'; (with comments due on the) same date as the "concerted practices" guidelines and (the Commission has) again has called for comments. And the reason that they've done that is that the new prohibition on misuse of market power has taken effect, as we mentioned, at the same time as the other Harper Review changes on 6 November 2017.

AP: Listeners will recall that the changes to section 46, which received a lot of publicity, involved the introduction of an effects test. So rather than the previous prohibition on companies with a substantial degree of market power taking advantage of that power, for one of a set of (three) proscribed purposes – the new section 46 prohibits corporations with a substantial degree of power in a market from engaging in conduct that has the purpose, or likely effect, of substantially lessening competition, either in that market or importantly, in any other market in which that corporation supplies goods or services, or acquires goods or services.

RZ: And Alyssa, what I think that will mean for our clients moving forward is that they will need to think much more carefully about the effects of their unilateral conduct in circumstances where perhaps clients have previously been focused much more only on purpose around misuse of market power.

AP: That's right Ross, and we're sure the ACCC will be keen to test the boundaries of this new law because traditionally the misuse of market power prohibition has been one that the Commission has found difficult to prove up in court.

Third line forcing now subject to an "effects" test (5:23)

RZ: Excellent, so moving on then from concerted practices and misuse of market power. Competition lawyers following this Bill will have a lot more time on their hands given the changing treatment to third line forcing. Third line forcing is moving from a per se or automatic prohibition, to be dealt with, like all other exclusive dealing, subject to a substantial lessening of competition test. Finally, Alyssa, our clients will be relieved that they can now offer great deals to consumers with impunity!

AP: Absolutely right, no more of those third line forcing notifications that pepper the ACCC's website!

Joint venture exception to cartel conduct is broadened (6:05)

AP: One change introduced by the Bill that I know a lot of our clients will be interested in is the broadening of the joint venture exception to cartel conduct – that now applies to arrangements and understandings between competitors, as well as conduct that is captured in a contract. We think this should make the exception easier to apply going forward.

AP: The one question mark that sits over the joint venture exception under the new changes is that Parliament has introduced a new limb to the test so that the relevant provisions must be not just for the purposes of the joint venture, but also reasonably necessary for undertaking the joint venture. It's quite unclear, at this stage, exactly what that new limb is going to require.

RZ: It's also important to remember, Alyssa, even if your joint venture is subject to the exception, that the substantial lessening of competition test will continue to apply – and that if you do want to invoke the exception, then you will bear the onus of proving that at the joint venture, didn't in any event, substantially lessen competition.

Overhaul of the merger clearance process (7:05)

RZ: Alyssa, the Bill also repeals the formal merger clearance process in the CCA, which in any event, hadn't been used at all since its introduction in 2007. And it makes important changes to the existing merger authorisation process which has been used most recently, and successfully, at least on a handful of occasions, and it combines two previously separate processes – the formal merger process on the one hand and the authorisation process on the other.

RZ: The decision-maker under the new combined merger authorisation process will be the ACCC and not the Australian Competition Tribunal as we've had under the merger authorisation process for the last decade or so. In applying that test for merger authorisation, the ACCC needs to be positively satisfied that there is no substantial lessening of competition, or that public benefits arising from the transaction will outweigh any anti-competitive detriments in order to authorise the merger, and there is only a limited right of appeal, not a right to a full merits review before the Australian Competition Tribunal.

RZ: Most importantly the ACCC informal merger clearance process, which is used in the vast majority of mergers in Australia, is not changed by the Competition Reform Bill and will remain available in addition to the amended merger authorisation process. We expect the informal merger process to remain the avenue of choice for corporate Australia.

Access under Part II!A of the Competition and Consumer Act 2010 (Cth) (8:51)

AP: The final set of changes that it is useful to touch on Ross, are to Part IIIA of the Competition and Consumer Act which contains the national access regime. There are quite wide-ranging changes being made to this part of the Act including some important changes to the declaration criteria, which infrastructure owners and access seekers will be well familiar with.

AP: The changes to the declaration criteria include:

• a change to the promotion of a material increase in competition criteria;
• the removal of the privately profitable test under Criterion B; and
• the introduction of a positive requirement to show that access on reasonable terms and conditions as a result of declaration will promote the public interest.

AP: We think that, on balance, these changes to the declaration criteria will make it easier for infrastructure owners to resist applications for declaration going forward.

RZ: Thanks very much Alyssa, unfortunately we're out of time, but we hope that's been useful. Please have a read of our publications for more detail on these, and other, changes and feel free to contact the Ashurst competition team if we can further assist.

Thanks Alyssa, thanks Ross; have a great day all.