Government response on Harper ‘effects-test’ recommendation

In its initial response to the Harper Report the Government ‘noted’ the Harper Panel’s recommendation to introduce an effects test into the misuse of market power laws.

They indicated that there would be ‘further consultation’ which took the form of consultation on a Treasury discussion paper over late 2015/early 2016.

Today the Government has announced that the Government will amend s 46 in line with the Harper Recommendations.  Prime Minister, Malcolm Turnbull, stated:

“… Last night, the Cabinet has agreed that we will move to amend s.46 in line with the recommendations of the Harper review.”

“What this will do is ensure that our competition law works better to enable competition, to enable smaller businesses, emerging businesses, to be better able to compete. We know that while larger firms are often very innovative and very often very competitive, they are more innovative if the hot breath of competition is coming down their neck.”

“It is subtly different from the existing one because it seeks to protect competition. When you protect the competitive process, when you protect competition, you are not protecting one firm or another, you’re protecting consumers overall.”

This has been the most controversial of the Harper recommendations and earlier consideration of the issue had split the coalition.  There was little expectation that the change would be endorsed by the Government with the result that today’s announcement came as a surprise to many.

Full details are not yet available, but the reference to any amendment being ‘in line with’ the Harper recommendations suggests that, at the very least, the substance of those recommendations will form part of any reform bill.  However, it is not expected that any changes will be introduced prior to the election.

For more information on the existing law and how it compares to the proposed law, see my misuse of market power reform page.

 

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.

Some international news; Intel, Google etc

The Intel Decision

The European Commission has now released a non-confidential version of its decision in the Intel case (all 518 pages), in which it fined Intel €1.06 billion for abusing its dominant position:

• Press Release announcing €1.06 billion fine against Intel (13 May 2009)
• EC Press release announcing release of its non-confidential reasons in the Intel case (21 September)
• The Intel decision (provisional non-confidential version) released 21 September 2009

US Antitrust Division and the Google Book Search case

The US Department of Justice (Antitrust Division) has weighed into the pending Google Book Search case, recently filing a statement opposing a proposed class settlement:

• The Antitrust Division Filing of 18 September
• Blog discussion by Randy Picker, University of Chicago
• Useful Commentary by Danny Sullivan
• New York Times article – ‘US Urges Changes to Google Book Deal

EU Consults on Vertical Agreements

On 28 July 2009 the EC launched a formal consultation on EU Rules applicable to vertical agreements.  See discussion by Sheppard Mulin.

Changes to Canadian law

Bill C-10, which received Royal Assent on 12 March 12, introduced significant changes to the Canadian Competition Act.  McCarthy Tetrault has provided a couple of useful overviews of the changes:

• Government Enacts Significant Changes to Canada’s Merger Review Laws (29 May 2009)
• Governmeng Enacts Significant Changes to Canada’s Competition Laws (17 September 2009)

Politics and the Pursuit of Efficiency in New Zealand

Bronwyn E Howell has written a paper on ‘Politics and the Pursuit of Efficiency in New Zealand’

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.

US DOJ Philosophy Shift on Single Firm Conduct

The new Assistant Attorney General in charge of the DOJ’s Antitrust Division, Christine A Varney, has announced withdrawal of the Department’s 2008 Report ‘Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act‘, stating it no longer represents DOJ(AD) Policy.  The Report, Varney claimed, ‘raised too many hurdles to government antitrust enforcement and favored extreme caution and the development of safe harbors for certain conduct within the reach of Section 2’.

This announcement signals a ‘shift in philosophy’ at the DOJ and clearly announces the AG’s intent to aggressively pursue ‘cases where monopolists try to use their dominance in the marketplace to stifle competition and harm consumers’.

In particular, Varney noted that the theory that underpinned the approach of the former administration, that monopoly markets ‘are generally self-correcting’ had been upset by recent developments in the market which ‘make it clear that we can no longer rely upon the marketplace alone to ensure that competition and consumers will be protected’.

Farewell to the Federal Magistrates Court

The Federal Magistrates Court will be scrapped in a bid to save time and money.  All federal matters will now be heard by the Federal Court. Why is this relevant to competition law?  Late last year the Government, in its infinite wisdom, decided to give the Federal Magistrates Court the power to hear matters relating to s 46 (misuse of market power) where brought by a corporation or private person (see Trade Practices Legislation Amendment Act 2008); in all other competition law matters the Federal Court has exclusive jurisdiction.

Misuse of market power is, of course, one of the most complex areas of competition law and policy and, although the Government claimed this amendment was designed to make access to ‘justice’ quicker and easier, it was always doomed to failure.  Leaving aside the fact that the Federal Magistrates Court has no expertise in complex s 46 (or any competition law) matters and that by their very nature (requiring economic evidence etc) these matters are costly pursuits, the abolition of the FMC has been contemplated for some time.  No s 46 case has been brought under s 46 in the FMC and never will be.

Ironically, while the conferral of power on the FMC for certain s 46 cases was said to be needed to provide greater access to justice for small business, the AG now claims abolishing the Court will provide greater access to justice.

The newly structured Federal Court will, however, operate in two tiers, with appeals ‘and other complex work’ generally being heard in the first tier by Federal Court judges and less complex matters being heard at the second tier, which will be operated by the Magistrates currently working in the Federal Magistrates Court (who will still be called Magistrates).  It is unclear whether competition law matters will be capable of being heard at both tiers or (more appropriately) just in the first tier.

See Press Release from the Attorney General.

Follow up – magistrates may thwart attempts to completely abolish the Court

EU Guidance on Article 82 published

The EU has published its much anticipated guidance document on abuse of dominance under article 82.  View the press release.  As expected, it sets out “an economic and effects-based approach to exclusionary conduct under EC antitrust law”.  The document also makes clear that the enforcement policy is focused on protecting consumers and protecting the “process of competition and not on protecting individual competitors” and expressly recognises the relevance of efficiency claims.   The full guidance document can be viewed here.  The Commission has also published an FAQ Document.

China Defends Vitamin Price Fixing

The Wall Street Journal reports that the Chinese Ministry of Commerce has made a ‘friend-of-the-court’ filing in a case alleging price fixing by four Chinese vitamin C manufacturers.  The four companies involved are said to have captured the relevant market after eliminating rivals over a number of years through predatory pricing conduct.  It is alleged that they then agreed to control export quantities and raise prices.  China is defending the manufacturers, claiming ‘sovereign immunity’; for purposes of their motion to dismiss the Chinese manufacturers did not dispute the price-fixing allegations – they simply claimed that they were compelled to engage in that conduct by the Ministry.

THE DECISION

On 6 November Judge Trager, in the United States District Court for the Eastern District of New York (In Re Vitamin C Antitrust Litigation 06-mdl-1738 (DGT)), rejected a claim by by the Chinese companies to dismiss the case “on the grounds that their price fixing activities were compelled by the Chinese government.” Judge Trager noted that “The Chinese government’s appearance as amicus curiae is unprecedented’.  Judge Trager held that while the Ministry’s Brief was ‘entitled to substantial deference’ it would ‘not be taken as conclusive evidence of compulsion, particularly where, as here, the plain language of the documentary evidence submitted by the plaintiffs directly contradicts the Ministry’s position.’

Judge Trager noted that ‘the issue at this stage of the case is whether there is a factual dispute as to the alleged compulsion’ and concluded that ‘the record as it stands is simply too ambiguous to foreclose further inquiry into the voluntariness of the defendants’ actions’ and, accordingly, denied the defendants’ motion to dismiss.

The outcome of this decision will have significant implications for international competition law enforcement.

See also Kate Fazzini, ‘Antitrust Suit Proceeds Against Chinese Vitamin C Makers‘, NYLJ, 13 November 2008.

Changes to misuse of market power provision

The Trade Practices Legislation Amendment Act 2008 (Cth) was assented to on 21 November and came into operation on 22 November. You can view the changes to s 46 on my misuse of market power page.

The key changes include inserting a new s 46(6A) providing guidance as to what might constitute ‘taking advantage’ and making clear that recoupment is NOT required for predatory pricing actions under s 46(1) (see new s 46(1AAA).

Predatory Pricing in Australia

The United States Department of Justice has recently released a report on section 2 of the Sherman Act. It emphasises (at p 11) that the role of competition law is protection of competition not competitors (a philosophy espoused by our Government but not reflected in our new predatory pricing laws). In the context of predatory pricing it highlighted that a recoupment requirement ‘serves as a valuable screening device to identify implausible predatory-pricing claims’ (p 69) (an element not required by our targeted predatory pricing laws and that soon will (expressly) not be required by our core misuse of market power provision) and that it does not consider a ‘meeting competition’ defence should apply to such claims (p 71) (it’s widely thought this would apply to defeat the ‘purpose’ element of our predatory pricing laws). The DOJ also urges that it is ‘important to develop sound, clear, objective, effective, and administrable predatory-pricing rules that enable firms to know in advance whether their price cutting will result in antitrust liability’.

The EU is also currently conducting an review of its abuse of dominance provision (Article 82 Review) and is expected to release its report shortly – the report is expected to focus on an increasingly effects-based application of abuse of power provisions (see speech by Neelie Kroes to Fordham Conference, September 2008). Kroes notes that the guidance she proposes for Article 82 will ‘focus on those cases that clearly lead to anti competitive effects’

Australia, on the other hand, is increasingly focussing on the purpose, rather than the effect, of dominant firm conduct to determine its legality. The primary misuse of market power provision (s 46(1)) prohibits firms with a substantial degree of market power from taking advantage of that power for a prohibited purpose. A number of calls to replace or supplement the purpose element with an effects-based test have failed. This provision has been interpreted restrictively. Proposed changes to the law (Trade Practices Legislation Amendment Bill 2008 (awaiting assent)) may broaden its operation by providing some definitional assistance for the ‘taking advantage’ element. In relation to predatory pricing conduct it will also insert a new provision (s 46(1AAA)) which will expressly provide that “If a corporation supplies goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying the goods or services, the corporation may contravene subsection (1) even if the corporation cannot, and might not ever be able to, recoup losses incurred by supplying the goods or services.”

In addition to the general abuse of power provision in s 46(1) Australia recently (2007) adopted the ‘Birdsville Amendment’ – s 46(1AA) – which prohibits a corporation with substantial market share from engaging in sustained below cost pricing (the relevant cost for this purpose is not defined) for a prohibited purpose (broadly defined). There is no necessity for the below cost pricing to be linked to the market share. A recent attempt by the current government to amend this provision to replace market share with market power and to insert a ‘taking advantage’ element (to ensure there was at least a causal nexus between market share and the prohibited conduct) failed to pass through the Senate. Consequently, in relation to predatory pricing conduct in Australia there remains an emphasis on purpose over effect; there is no attempt to target that pricing conduct likely to be genuinely harmful to competition (as opposed to competitors), no defence and no possibility of having the conduct authorised in advance. Large firms should, therefore, be very wary before engaging in any sort of sustained (whatever that means) below cost pricing.

The Birdsville Amendment is flawed in many ways. It clearly fails the US DOJ’s principle of focusing on competitive effects over effects on competition, of being ‘clear’ and allowing predictability for business. It also fails any sort of common sense test; prohibitions on abuse of power generally must be treated with caution, given the recognised difficulty in distinguishing between vigorously competitive and efficient dominant firm conduct and anti-competitive dominant firm conduct; this difficulty is more pronounced with predatory pricing conduct given the clear desirability (for consumers) of low cost pricing in most cases.

We can only hope that the Birdsville Amendment will be short lived – unfortunately, it appears the former government (regardless of its true feelings about this law) will continue to thwart any attempt to discard it, at least for the foreseeable future.

For more detail on Australia’s new predatory pricing law see my article: Clarke, ‘Australia’s Radical Predatory Pricing Reforms: What business must know’ (2008) 1 Deakin Business Review 6.

For more see the misuse of market power page on my Australian Competition Law web site.

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