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.

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.

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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