Private member’s bill madness

A couple of private member’s bills were introduced yesterday to get the ball rolling on this election season’s competition law craziness.

First up we have Rob Oakeshott MP’s  Competition and Consumer Amendment (Strengthening Rules About Misuse of Power) Bill 2013. This proposes insertion of a subsection 46(1AAAA) – just to keep with the Act’s horrendous numbering trend and would introduce an effects based test for conduct engaged in by corporations with substantial market power. It also proposes further investigation powers for the ACCC where the ACCC ‘reasonably believes that circumstances exist to indicate that there has been or might be a contravention of section 46’. The EM talks a lot about cheap milk and Rob Oakeshott’s press release emphasises the bill’s aim to ‘help farmers’, so there’s no need to guess at the genesis for the bill.

This, however, is nothing compared to the industry-specific and convoluted bill introduced by Bob Katter MP and, not suprisingly at all, supported by Nick Xenophon MP and Andrew Wilkie MP.  The Supermarket Dominance Bill 2013 would make it an offence (subject to $50m penalty) to operate a supermarket business where that business (and related supermarket businesses) has a supermarket market share of: more than 40% for year 2 or more than 35% for year 3 etc to more than 20% for any later year. Essentially it requires reduction in market share of the major supermarkets to no larger than 20% progressively over a six year period. Other similar offences are included. It goes beyond supermarket retailing to ‘household retail businesses’ as well, aiming to ‘ensure that the supermarket giants’ vast operations in “household retail businesses” are progressively reduced to 20% total market share throughout a 6 year period’ (EM). This bill also involves setting up a Commissioner for Food Retailing.

The Katter bill is one of the strangest bills I’ve read … and there have been some shockers relating to competition policy in Australia. Margy Osmond of the ANRA has described the bill as ‘ill-conceived and populist’ (see Jacob Greber and Claire Stewart, ‘MP’s pressure supermarkets’ (Australian Financial Review, 18 June 2013). Hard to argue with that assessment.  Fortunately, as private member’s bills they are unlikely to come to anything; but let’s just hope they’re not an early indication of the craziness that awaits as we head full swing into election campaigning in a climate where supermarket bashing is as popular as ever.

Price signalling bill introduced

Shadow Minister for Competition, Mr Bruce Billson, this morning presented the Competition and Consumer (Price Signalling) Amendment Bill 2010 at 10.26am. An explanatory memorandum was presented and statement made.  The Bill was read for a first time at 10.37am.

Although promoted as a response to concerns about banking competition, it is not limited to any particular sector of the economy. The explanatory memorandum states:

This Coalition Private Member’s Bill seeks to establish a new head of power under which the Australian Competition and Consumer Commission (ACCC) would be able to investigate and seek penalties for ‘price signalling’ that produces anti-competitive effects in the Australian market, to the detriment of consumers.

Price signalling is essentially defined in the bill as communication of price-related information to a competitor for purpose of encouraging the competitor to vary supply or acquisition prices in circumstances where that communication has, or is likely to have, the effect of substantially lessening competition.

The new provision would be contained in Division 2 of Part IV of the TPA and would not be subject to the new criminal regime applicable to some forms of cartel conduct.  The provision would be in the form of a new s 45A (filling the gap left by the repeal of the price fixing provision last year).  It would provide, in part:

Prohibition of price signalling

(1)    A corporation must not engage in price signalling.

(2)    For this section, a corporation engages in price signalling if:

(a)    it communicates price-related information to a competitor; and

(b)    it does so for the purpose of inducing or encouraging the competitor to vary the price at which it supplies or acquires, offers to supply or acquire, or proposes to supply or acquire, goods or services; and

(c)    the communication of that information has, or is likely to have, the effect of substantially lessening competition in the market for those goods or services, or in another market.

Establishing the purpose of a communication

(3)    Without in any way limiting the manner in which the purpose referred to in paragraph (2)(b) may be established, a corporation may be taken to have communicated price-related information to a competitor even if, after all of the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the corporation, or of any other person, or from other relevant circumstances.

Several more sub-sections follow which define various terms. In particular, it captures public and private communications, including those made by way of public announcement. Importantly, however, transmissions or re-transmissions of price-related information that is already in the public domain is excluded, as are communications required by law.

The bill is more modest than had been feared by some.  Importantly, it applies only to price signalling when substantial lessening of competition flowing from that conduct can be established – this is not an easy threshold to meet – and requires a purpose of inducing a competitor to alter prices.  Although that purpose may be inferred, it must still be established in each case.  The exclusions noted above will also limit its scope.

Although it is suggested that there may be better or more effective methods of capturing anti-competitive communications between competitors (if such a law is required – and there is some argument that it is following the narrow interpretation of the word ‘understanding’ in the petrol cases – then addressing that issue directly rather than creating yet another untested provision would seem to be the preferred course of action), for a law directed toward “price signalling”, the proposed bill would seem to strike the balance appropriately between identifying that conduct likely to cause genuine anti-competitive concern and be an appropriate focus for legislative intervention, and avoiding casting the net too wide and thereby risking a series of unintended consequences (for example, a per se ban would have stifled even pro-competitive public price communications).

That said, if passed, the bill is unlikely to have an earth-shattering impact – proof of anti-competitive effect will be very difficult.

Creeping Acquisitions Bill Introduced

The Competition and Consumer Legislation Amendment Bill was introduced into Parliament today.  It includes the following key amendment to the competition law provisions:

(1) replacing the words ‘a market’ in section 50(1) with ‘any market’

(2) Removing the requirement that a market, for purposes of the merger provision, be a ‘substantial’ market, by removing the word substantial from subsection 50(6)

The Government claims that this will address some of the concerns raised about creeping acquisitions.

Detail on the changes

Subsection 50(1)

The existing s 50(1) provides:

A corporation must not directly or indirectly:

(a) acquire shares in the capital of a body corporate; or

(b) acquire any assets of a person;

if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in a market.

The bill proposes to amend the last two words from ‘a market’ to ‘any market’. This, the EM explains (at para 1.33)  is to ‘clarify the ability of the ACCC or a court to consider multiple markets when assessing mergers’ and to ‘prevent businesses from being able to challenge a decision that a proposed merger or acquisition would, or would be likely to, substantially lessen competition in a market in breach of section 50, on the grounds that the lessening of competition identified was in one or more markets other than the primary market in which the merger or acquisition would occur.’

Subsection 50(6)

The existing provision provides that, for purposes of s 50:

market means a substantial market for goods or services in:

(a) Australia; or

(b) a State; or

(c) a Territory; or

(d) a region of Australia.

The bill proposes to remove the word ‘substantial’. The government claims that the current provision is unclear about whether or not the market definition extends to ‘local’ markets and is also unclear on just how ‘substantial’ a market must be to be caught. In particular, they claim (at para 1.28 of the EM) that removing the word substantial will ‘remove the risk … that a court may in the future adopt the view that the substantiality of a market should be determined with reference to Australia as a whole.’ The EM goes on to state that the ‘amendment will also remove doubts regarding the ACCC’s ability to examine markets where creeping acquisitions concerns may arise in the future’.

They are the proposed changes in a nutshell.  More detail to follow soon.

Note: Dr Emerson’s second reading speech is now available.

Senate Committee rejects amendments to merger laws

The Senate Economics Legislation Committee has recommended that the Trade Practices Amendment (Material Lessening of Competition – Richmond Amendment) Bill 2009 be rejected.

The Bill was introduced by Senator Nick Xenophon and drafted by Associate Professor Frank Zumbo.  According to Senator Xenophon it was a response to an event occurring in West Richmond, Adelaide, involving Woolworths’ attempt to purchase a service station site next to a small independent site run by ‘Mr Fares’.  Of course, this has nothing to do with the content of the Bill, which relates to mergers, but that didn’t stop the Bill’s proponents from using this example as justification for the Bill (the Senate Committee correctly noted that the ‘anticipated’ conduct complained of would relate to predatory pricing not creeping acquisitions, despite claims to the contrary by Zumbo – and that, ironically, the Bill is likely to hurt Mr Fares by removing his ability to sell his business asset to larger competitor).

The Bill itself was designed to do two things:

• lower the threshold for prohibited mergers from those that substantially lessen competition to those that materially lessen competition
• address creeping acquisitions by preventing a corporation with substantial market share from merging or acquiring shares/assets which would have the effect of lessening competition in a market (no ‘substantial’ or ‘material’ lessening required)

Are Australia’s current merger laws too permissive?

Before considering their view on the Bill itself, the Committee considered the claim by leading proponent of the Bill, Frank Zumbo, that the ACCC approves 97% – or nearly all – mergers and that this proved Australia’s merger laws were too permissive.  The Committee rejected this claim, finding that it was misleading because it excluded mergers not assessed because they do not substantially lessen competition and those not proposed because they clearly do have that effect.  As a result, it did not accept that the 97% approval figure was accurate or that it proved that Australia’s merger regime was too permissive.

Lowering the merger threshold

On the first point the Committee (Xenophon dissenting) held that alteration of the merger test would generate uncertainty when there was no sound evidence suggesting a problem with the current bill.  They also did not accept that the different wording would necessarily lower the threshold as Zumbo had claimed.  They concluded that the concept of ‘substantially lessening competition’ was well established in Australia and elsewhere

Creeping acquisitions

In relation to this issue the Committee (Xenophon dissenting) noted that the change proposed would be ‘arbitrary and contentious’.  Although they rejected the claim by opponents of the bill that the bill would set an absolute market share cap (although I’m not sure that in this respect they correctly interpreted the criticisms) they did find that the change could potentially harm the small business it was intended to protect.  They were also influenced by the Government’s current proposal to clarify the definition of market in relation to mergers, to ensure it was capable of including ‘local market’, which they considered might address some of the concerns raised about creeping acquisitions.

The dissent

Naturally Senator Xenophon, who introduced the bill, dissented and recommended passage of the bill with some modification.  He placed a lot of emphasis on the ‘Fares’ case (which doesn’t relate to merger law) and Zumbo’s 97% figure, rejected by everyone else as false evidence of the ‘leniency’ of Australia’s merger laws – claiming the statistic suggested the threshold was ‘far too onerous and high’.  He also claimed

The material lessening of competition test would assess the reduction in consumer choice as a result of a merger or acquisition, whereas the substantial lessening of competition test effectively only focuses on pricing power. [at 1.25]

This is patently false and, one would wonder where he got this idea, until you skip to paragraph 1.26 and see that it is derived from a quote from Assoc Prof Zumbo’s submission.  That, of course, does not make the statement true.

In relation to the creeping acquisition provision, the core focus of Senator Xenophon is protection of small business from ‘aggressive and arguably anti-competitive strategies of larger and more powerful corporations such as Woolworths’.  If that’s Xenophon’s concern, he’s focusing on the wrong provision – the proposed changes to the merger laws would not correct this and existing misuse of market power provisions already address this, at least to a degree – if he’s concerned with the way in which market power is used he should focus attention on s 46 and stop messing with our merger laws which represent international best practice.  He should also be reminded that protection of small business is not the goal of our competition law.

Phew!

As a private member bill this one was always going to struggle to get up – but stranger things have happened in Australian competition law in the past – particularly in election years – so a general ‘phew’ describes my relief that the Senate Committee got it right this time – hopefully the Senate listens to them and buries the bill – hopefully deep enough that it doesn’t resurface any time soon.

View full report

Renaming of the TPA

As previously predicted, the TPA will be renamed the Competition and Consumer Act 2010 if the second phase of the Australian Consumer Law Amendments passes through Parliament.

The Trade Practices Amendment (Australian Consumer Law) (No 2) Bill 2009 was introduced into the House of Representatives on 17 March 2010.  Nestled in the monster bill, Schedule 5, s 2 includes the name change: “Omit “Trade Practices Act 1974 “, substitute “Competition and Consumer Act 2010“”

😦

No need for ‘substantial’ markets for mergers?

Out of the blue, the Government today announced it proposed to change the definition of market for purposes of merger review. The current definition of market refers to a ‘substantial market for goods or services’ and the proposal involves removal of the word ‘substantial’.

In his press release, competition minister Craig Emerson claims that this change is intended to fulfill the Government’s election promise to deal with ‘creeping acquisitions’.  It is tough to see how it will do this.  Former chair of the ACCC’s Merger Review Committee, Prof Stephen King has made this observation in relation to the proposed change:

Markets are based on substitution. If properly defined, an economic market for merger analysis captures the relevant level of competition. A market might be nationwide or even international. Or it may simply cover a single town or even part of a town … The key issues are – what is the nature of competition and what will the merger or acquisition do to this competition. If the merger substantially lessens competition in a properly defined economic market then it will harm consumers and the economy. The merger should be opposed. Requiring that the market is also ‘substantial’ is redundant. So if Durie’s speculation is correct, the government will be getting rid of a redundant but confusing adjective!

It is also unclear how this proposal fits with other proposals directed toward creeping acquisitions, including the Government’s own Creeping Acquisition Discussion Paper No 2 (for which submissions closed on 10 July 2009 and the proposed ‘Richmond Amendment‘, currently under review in the Senate.  The press release is light on detail in this respect.

The Conduct Code Agreement 1995 now requires the Government to consult with state and territory governments in relation to the proposed amendments (full details of which are not yet available) before their implementation.  Hopefully more details will emerge in the coming weeks.

The papers

News of the proposal was reported in the following papers this morning:

• David Crowe, ‘ACCC gets tough on creeping giants’ Australian Fin Review, p 5.
• John Durie, ‘Competition Minister takes aim at creep for control’, The Australian
• John Durie, ‘Craig Emerson plans changes to the law to stop creeping takeovers’, The Australian
  Some notes on this item: it claims that ‘markets such as the US and the EC rely more on turnover tests than market share in determining whether a deal should be stopped.’ Actually, no they don’t.  The US and EU (we’re not allowed to call it the European Community anymore, post Lisbon Treaty) rely on turnover tests to determine whether parties MUST notify their mergers to relevant authorities; they impose a mandatory pre-merger notification obligation on mergers meeting certain threshold and jurisdictional tests.  Turnover itself is not part of the competition assessment in any of those jurisdictions.  In addition, the change to notification thresholds in the US from approx $65m to $63m (referred to in the article as evidence of the US ‘widening its net’) reflects an annual adjustment designed to account for changing levels of gross national product – it is designed to keep the ‘net’ steady, rather than to increase or reduce it.

Creeping acquisitions … the journey continues …

Yesterday the  Senate referred the Trade Practices Amendment (Material Lessening of Competition—Richmond Amendment) Bill 2009 (introduced into the Senate last Thursday) to the Senate Economics Committee for an inquiry and report.  This is a private member’s bill, rather than a Government bill, sponsored by Nick Xenophon.

The Bill proposes to amend the TPA in relation to creeping acquisitions.  The proposal involves ‘preventing corporations from directly or indirectly merging, or acquiring an asset, which would result in ‘material’ lessening of competition in the relevant market.  The word ‘material’ refers to a pronounced or  noticeably adverse effect on competition’, a lower threshold than the current test.   It would also prevent any corporation with substantial market share acquiring shares or assets if the acquisition would have the effect or likely effect of lessening competition (no material effect necessary).

This differs significantly from the two government issues papers on creeping acquisitions released last year and earlier this year.

I have much to say on the proposal but, as the Senate has requested withholding submissions until released by the Committee, I will refrain from expressing my views until a later date.  [Note: my submission has now been released by the Committee and can be viewed online] At this stage it is hard to know if this is a serious proposal (leaving aside content, as a private member’s bill it is almost certainly doomed to failure) or is designed to provoke the Government into releasing its own creeping acquisition legislation – something it originally promised to do by mid-this year.

One thing is certain: Economists will have fun with this one. So will I. Submissions are due by 18 December.  Reporting date is 18 March 2010.

View all submissions.

Criminal cartel laws now live in law, but not in print

Today marks the first day the long-awaited criminal cartel laws enter force in Australia.  The news laws create new civil and criminal offences for engaging in cartel conduct.  Cartel participants now risk up to 10 years jail for making or giving effect to cartel provisions, defined (in s 44ZZRD(2)!) to include price-fixing (this replaces s 45A which has been repealed), bid-rigging, restricting outputs and market division between competitors.  Despite the flaws in the drafting of the laws, it is appropriate to treat cartels as criminal and the law should be welcomed. It has been described by former ACCC Chairman as a ‘red letter day for competition law‘.

However, despite the very serious consequences now associated with the new law, Treasury has not produced a consolidated version of the Act – so nobody can clearly see how the new law operates without flicking between two different – and highly complex – documents.  This is unacceptable.  It is normal for legislative consolidations to lag behind new legislation where the amendments are trivial or incidental to amendments made to other acts.  But this is a monumental and complex change and it is not as if Treasury has been caught off guard.  The legislation passed on 16 June.  It received Royal Assent on 26 June.  Since then it has had 28 days for someone among its hundreds of staff to put together a consolidated Act prior to the criminal laws kicking in.  Nobody has bothered.  ComLaw did create a new consolidation on 1 July (AFTER the cartel act received assent) but it didn’t include the new law!

I did it in a few hours – I didn’t get much sleep on Tuesday night compiling the ‘unofficial’ consolidation, but it wasn’t a difficult task. Why?  I’m teaching the new law to my undergraduate students in a couple of weeks and wanted to see the new additions/amendments in context in order to ensure I was capturing the full raft of changes – and it was a useful exercise.  But the only consequence for me of not doing it would be to deliver a sub-standard lecture.  Although my students may consider this a particularly serious and undesirable outcome, for business and lawyers the consquences are clearly much more serious.  It is unacceptable that there is no ‘official’ means of viewing the new law, particularly given the serious – criminal – nature of the consequences for failing to adhere (for which ignorance of the law is no excuse).

This is not the only area in which Treasury has been lax in updating material for the public.  It took well over a week for the Treasury website to acknowledge Dr Craig Emerson MP as the new minister for Competition and Consumer Affairs (this change should take no more than a few minutes).  And his web site is still part of the ‘Ministers for Innovation, Industry, Science and Research’ website (Emerson is also Minister for Small Business, Independent Contractors and the Service Economy; Minister Assisting the Finance Minister on Deregulation‘) rather than Treasury Ministers portal (all the other Treasury Ministers have web sites hosted by Treasury and their quality is far superior).

At least the main page of the site now lists his various ministerial responsibilities – until recently nobody would have guessed from the web site that he had anything to do with Competition policy.  When I complained about this, Webhelp from the Department of Innovation, Industry, Science and Research, informed me (on 3 July) that the page reflecting Minister Emerson’s ministerial responsibilities had been updated (http://minister.innovation.gov.au/emerson/Pages/ministerialresponsibilities.aspx) and that the rest of the website was in the process of being updated and ‘should’ be completed shortly.  It’s not clear whether it has been ‘completed’ or whether they are still at work.  If it is ‘completed, then the reference to the Competition Ministry still remains in the shadows of a very large and overbearing ‘header’ which proclaims that this page is for Ministers of Innovation, Industry, Science and Research .  It is not terribly comforting for those hoping for a strong government focus on competition policy.

Treasury has been very keen to release reports, establish inquiries, enact complex new laws in relation to competition policy (for some of that, at least, they are to be commended) but needs to improve its act when it comes to dissemination of information about new laws and policy to the public – in particular, those subject to the new criminal laws have a right to be able to view consolidated legislation which clearly sets out their obligations.

Trade Practices Act – Time to Split it Up?

The Trade Practices Act (TPA) is too big and too complicated. The Government has introduced phase I of their two-phase plan to implement a new Australian Consumer Law which will bulk up the Act even further (the Bill alone runs to 84 pages).  The adds to the additional 90 pages of statutory text generated by the recent passage of the criminal cartel act.  It cannot go on … the annotated acts are bursting at their seems.

So what can be done to stem the flow of dense legislative supplements to what was once a neat little Act (the original 1974 Act comprised a little over 38,000 words of text; the current consolidation contains more than 305,000 words)?  The answer is probably nothing.  It is unlikely there will be any substantive legislative repeals or genuine attempts at simplification, although this would be desirable, and the problem is likely to get worse with current inquiries into unconscionable conduct, creeping acquisitions and the meaning of ‘understanding’ in part IV of the Act likely to generate more legislative content in the near future.  Another answer is needed.

Chris Bowen MP, when he was then Minister for Competition Policy and Consumer Affairs, announced that the Government would change the name of the TPA to the ‘Australian Competition and Consumer Act’ while in the process of implementing the Australian Consumer Law.  It was though that somehow this would ‘better reflect its purposes of promoting competition and empowering consumers’.  It is believed the Govenment is still intent on this name change.  Although, as a bit of a traditionalist, it hurts me to part with the term ‘Trade Practices Act’, of which I am now very fond, the proposed name change might present an opporunity.  While in the process of changing the Act’s name why not split it up?  Let’s divide it into a consumer act (‘Australian Consumer Act’ perhaps) and a competition act (‘Australian Competition Act’?).  These are two separate fields of law and policy (even if there may be some overlapping objectives) – they need not be married together in this legislative jungle.

While we’re in the process of splitting up the Act let’s also re-number it.  A multitude of additions and alterations over the years has led to an absurd numbering system.  The last part of the Act is Part XIII.  You might deduce from this that the Act has 13 parts.  You would be wrong; it in fact has 28 parts and a schedule.  Parts include IIIAA, XIAA, XIB etc.  All very logical!  The section numbering is even better. The new cartel laws begin with section 44ZZRA and end with section 44ZZRV.  Why?  Because the government wanted to slip them in between sections 44ZZR and 45.  Again, very logical and easy to follow for business trying to adhere to the law – and this is not the worst of it. This bizarre numbering is scattered throughout.  We have s 51ACAA (I kid you not), s 44AAGA, s 75AZQ, s 87CAA, s 95AZEA (seriously!), s 10.01 (yes, in Part X the numbering system completely changes – we go from s 119 to s 10.01 – 10.91 then we jump to s 150A at the start of Part XIA – there are no sections 120-150 in the Act) and my personal favorite, s 151BUAAA.  It is simply absurd.

So, with the re-naming and and of the Act we can also begin a re-numbering system.  Nobody really loves s 151BUAAA or will be sorry to see it go.  Lets put what we want in the Act (or Acts), then start the renumbering of parts and sections from scratch.  No doubt future amendments will mess this up a little, but the Act cannot continue on it’s current numbering trajectory.

There are, of course, more serious issues than poor structure and numbering of the Act.  It is highly complex and, as a result, inaccessible for many of those parties to whom it is directed (consumers and business).  But a simplified structure (one that clearly separates consumer and competition legislation and policy) and a logical numbering system would, at the very least, be a good start.

Consolidated TPA

Treasury hasn’t produced one and there’s no current consolidation at ComLaw, so in light of the fact that the criminal cartel laws (and the new civil cartel laws) kick into operation tomorrow I have prepared an unofficial consolidation.  The process of reviewing the entire Act has reminded me what bad shape it is in – I thought the numbering of the new cartel provisions was bad, but I’ve been reminded that the numbering scheme is simply consistent (and in some respects simpler) than most of the rest of the Act …

Note: A current consolidation is now also available at ComLaw and AustLII