ACCC Institutes Proceedings Against Cabcharge

The ACCC has instituted proceedings against Cabcharge alleging misuse of market power under s 46 and anti-competitive conduct under s 45.

It will be worth keeping an eye on this -particularly in relation to s 46 – the misuse of market power alleged is:

• ‘refusing to enter into agreements with competing suppliers of processing services that would have allowed Cabcharge’s payment products to be processed through alternative EFTPOS terminals’ and
• supplying ‘a significant number of taxi meters and fare schedule updates either free of charge or below cost for anti-competitive purposes in relation to taxi meters and processing services’

The ACCC Press Release is thin on detail, but repeated reference to ‘use of market power’ as opposed ot market share suggests that in relation to the second form of conduct alleged the ACCC intends to rely on s 46(1) rather than the new predatory pricing provision, s 46(1AA).  Even if this is the case, the ACCC may rely on the new s 46(4A), allowing the Court to take into account sustained below cost pricing (in this case perhaps a sustained below cost supply of taxi meters and fare schedules).  In relation to both forms of alleged market power abuses, the ACCC will have the benefit of a new s 46(6A) which provides a non-exhaustive list of factors the Court may take into consideration in determining whether a company has ‘taken advantage’ of its market power.  This provision is, as yet, untested, and there is much speculation on its scope – does it merely codify existing law or does it allow a wider range of conduct to satisfy the taking advantage requirement in s 46?  Either way, it will be one to keep a close eye on.

A direction hearing is listed before Justice Finkelstein on 21 July.

Criminal cartel bill passes … now awaiting assent

The Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 passed the Senate on 15 June 2009 with minor amendments that were confirmed by the House yesterday.  The bill is now awaiting assent and the core elements of the bill will come into operation 28 days after receiving assent.

The bill creates a new ‘cartel offence’ for which it provides criminal penalties of up to 10 years’ imprisonment and fines of up to $220,000.  A cartel offence occurs whenever a party makes or gives effect to a contract, arrangement or understanding containing a cartel provision, provided they intended to enter into that contract, arrangement or understanding and had knowledge or belief that it contained a cartel provision (the criminal ‘fault’ element).  In addition to introducing criminal penalties for cartel conduct the bill also introduces a civil prohibition, which mirrors the criminal cartel prohibition, save that it omits the criminal ‘fault’ element.  The penalty for contravening the civil prohibition is the same as the existing civil penalties.

The bill defines a cartel provision (in s 44ZZRD!) as a provision in a contract, arrangement or understanding between competitors relating to

• Price fixing (where the provision has the purpose or effect (or likely effect) of directly or indirectly fixing, controlling or maintaining prices for goods or services supplied or acquired (or re-supplied or likely to be re-supplied)
• Restricting outputs in the production or supply chain (where the provision has the purpose of directly or indirectly preventing, restricting or limiting production of goods, the capacity to supply services, or the supply of goods or services)
• Allocating customers, suppliers or territories (between all or any of the parties) or
• Bid rigging.

The existing price-fixing prohibition, contained in the more user-friendly s 45A, will be repealed.  The bill leaves in place existing exclusionary conduct provisions but does provide some anti-overlap provisions for resale price maintenance, exclusive dealing, dual listed company arrangements and mergers (these are a welcome addition to October 2008 exposure draft).

The new offence also contains a limited exception for joint ventures.  This exception has been the subject of considerable debate, centred on the fact that the exception is narrower than the current civil joint venture exception.  In particular, it is limited to contractual joint ventures (no adequate explanation has been provided for this restriction).  Amendments to the bill, passed by the House yesterday, extend the exception to joint ventures in which the parties intended to enter into a contract and ‘reasonably believed’ they had entered into a contract.  However, it does not extend the exception to arrangements or understandings and the supplementary Explanatory Memorandum, designed to explain this amendment, is unhelpful and, potentially, misleading in its explanation of the scope of this amendment.

The criminalisation of cartels is desirable.  The economic damage they cause is well documented and civil penalties, no matter the size, have failed to provide adequate deterrence.  But the consequences of criminalisation are serious and it is important to ‘get it right’.  The statement in the Senate ‘debate’ (if one can call it that) that we ‘would not want to see this legislation delayed’, despite (in Senator Cooney’s own words) its potential to generate uncertainty, the fact that the ‘legislation might be somewhat woolly’ and ‘misgivings’ about some of the provisions in the legislation, is unwise.  The legislation is long (running to 90 pages) and complex and, regardless of the desirability for criminal penalties, it would be wise to wait a bit longer and permit a full and transparent public consultation and review process before passing such far-reaching – and, in its current state, deficient – legislation.  Unfortunately the government has neglected this option.  Genuine concerns have been ignored, or dismissed, without adequate explanation.  Unfortunately the scope and complexity of the proposed new law will give rise to uncertainty for some time as the regulators, DPP and business feel their way through these new laws.

Background
This legislation has its origins in recommendations by the Dawson Review into Competition Law which reported in 2003.  This led to the establishment of a criminal penalties working party which reported to the Government in 2004; this report was never released publicly and a recent attempt to obtain it through a FOI claim was unsuccessful.  Following this report the Howard Government announced, in February 2005, that it planned to introduce criminal penalties for serious cartel conduct as recommended by the Dawson Committee later that year.  A federal election interfered with those plans and no bill was introduced.

Following the election of the Rudd Government, an Exposure Draft Bill for implementing criminal penalties was released in early 2008 along with a Discussion Paper on Criminal Penalties for Serious Cartel Conduct.  The bill was heavily criticised, but no detailed response to the submissions on the Discussion Paper was ever released.   An amended Exposure Draft Bill was released on 17 October 2008 containing some important changes, including removal of the ‘dishonesty’ element, designed to distinguish serious from ‘non-serious’ cartel conduct, and (somewhat inexplicably) increasing the criminal penalty from 5 years imprisonment to 10 years.  A further amended version was introduced into Parliament on 3 December 2008.

The bill was sent to the Senate Economics Committee on 4 December and, in the meantime, was passed by the House on 11 February and introduced into the Senate the next Day.  The Senate Economics Committee’s report was released on 26 February and must go down as one of the worst (if not the worst) reports ever produced by that Committee – it was littered with errors and did not attempt to address issues of key concern.   The report, despite recognising certain deficiencies with the bill, recommended that it be passed in current form.  Continuing criticism over the limitations on the new joint venture exemptions (inexplicably narrower than existing exemptions form the civil prohibitions) did, however, result in a relatively minor joint venture amendment in the Senate (as noted above) and the bill, with these amendments, was passed by the Senate on 15 June.  In passing the bill the Senate engaged in no substantive debate; instead the Hansard is littered predominantly with self-congratulatory remarks over the introduction of criminal penalties. Those amendments were agreed to by the House on 16 June.  The bill now awaits Royal Assent.

Criminal cartel bill passes Senate

The Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 passed the Senate last night with amendments relating to the Joint Venture exemption.  For discussion of the quality of these amendments see Fisse, ‘The Contract Requirement for the Joint Venture Exceptions Under Sections 44ZZRO and 44ZZRP of the Cartel Bill’ (Draft, 6 June 2009) (PDF)

There was little debate of any substance in the Senate leading to the passage of the bill, the Senate accepting the Senate Economic Committee Report and Recommendations, without reference to the Reports many inadequacies!  View Senate Hansard (from pp 108-116)

See also press release by the new competition minister, Dr Craig Emerson (incidently, today the Treasury Ministers Portal finally added Dr Emerson to the their list of Treasury Ministers; but the web site it directs you to – Emerson’s Ministerial Home Page – still makes no mention of the fact that he is now Minister for Competition and Consumer Affairs).

UPDATE: Amendments have been agreed to by House.  Final bill as agreed to both houses can be viewed here.  I will produce a separate post regarding the final passage of the bill which now waits assent – the criminal provisions will become operative 28 days thereafter.

Creeping Acquisition submissions due … later

Submissions on the ‘Creeping Acquisitions – The Way Forward‘ discussion paper are due tomorrow.  The paper proposes only one type of creeping acquisition law – a market power based law which would prevent acquisitions by corporations with substantial market power any time the acquisition would further ‘enhance’ their market power.  No guide to how much it would need to ‘enhance’ their power is provided …

For more see my submission to the inquiry.

UPDATE: I raced to get my submission in by the deadline of 12 June but it seems I need not have bothered.  Today the web site has been updated with a notice that “The closing date for submissions has been extended by four weeks, to 10 July 2009”.  Naturally this will also set back the introduction of any creeping acquisition law, which the Government previously announced would occur by 30 June (this, is of course, a good thing … better that they set it back until … never)

New National Competition Policy Website

On 1 June the National Competition Council launched two new websites:

• The main National Competition Council site provides information on third party access to monopoly infrastructure
• The new National Competition Policy (NCP) provides a wealth of information on the National Competition Policy Reform Program from 1995-2005

The new NCP site includes a full electronic copy of the Hilmer Report, National Competition Policy Agreements, information about key NCP reforms and who implemented those reforms, NCP implementation assessments, NCP payments and Australia’s follow on reform program.

The Council has also commenced publication of a new electronic newsletter to be published every second month (electronic subscription available).

These websites are a great improvement on the often clunky former NCC site.

ICN 8th Annual Conference

The 8th Annual Conference of the International Competition Network begins in Zurich today.  An Agenda and core documents are available online.  Tim Grimwade, the Executive General Manager, Mergers Group, of the Australian Competition & Consumer Commission, will moderate a session on Merger Notification and Procedures this afternoon.  Tomorrow, ACCC Chairman, Greame Samuel, will be a panelist on the cartel panel ‘Transitioning from an Administrative to a Criminal Regime’ and then will moderate another breakout session on Transitioning to Criminal Sanctions.  Mark Pearson, Executive General Manager of the ACCC, will moderate a session on ‘Leniency: Maximising Incentives for Reporting and Cooperation’.

Other topics of interest include competition advocacy (inc market studies), unilateral conduct, competition policy implementation and sessions headed ‘Interactive ICN – Maximising Network Effects’.  A special project report has also been prepared for the conference by the Swiss and Israeli Competition authorities assessing ‘Competition Law in Small Economies‘.

Competition Law Conference

The 20th Annual Competition Law Conference, organised by Chris Hodgekiss of the NSW Bar, was held in Sydney last Saturday 23 May, covering a range of current issues in competition law and policy.

The keynote speech of the Conference, ‘In Hope of Convergence – A Regional Perspective on Competition Law‘, delivered by High Court Chief Justice RS French has now been published online on the High Court’s website.  Chief Justice French paid particular attention to the new Indian competition laws, the majority of which came into operation on 20 May 2009.

Other sesssions at the Conference covered the proposed conduct of cartel litigation following the introduction of criminal penalties (including ‘the ACCC enforcement perspective on serious cartels – some key issues and practical considerations‘ by Marcus Bezzi (Executive General Manager, Enforcement & Compliance Division, ACCC) and ‘The Role of the CDPP in the Prosecution of the Proposed Cartel Offence’ Graeme Davidson (Deputy Director, CDPP). Brent Fisse (Lawyer & Senior Fellow, Melbourne Law School) followed with the paper ‘Avoidance and Denial of Liability‘, assessing potential escape routes from the new cartel laws), the complexities of representative and class action proceedings in competition law (with Dr Peter Cashman and Ben Slade) and Mergers and the availability (or otherwise) of a ‘failing firm’ defence (courtesy of Dave Poddar (Partner, Mallesons) and Tim Grimwade (ACCC))