Australia on the cusp of legislative change

A significant review of Australia’s antitrust regime has recently been completed. The Harper Review was a “root and branch” review of the Australian policy framework for antitrust law, which was subject to significant consultation across industry sectors. The Australian Government recently announced its support in part or in full for 44 of the 56 Harper Review recommendations, which have the potential to reach beyond Australian borders and, in many cases, draws from international antitrust regulation. The timing for implementation of reform is not definitive. However, it is expected that draft legislation for consultation incorporating a number of these recommendations, will be published in 2016, while other reform proposals have been referred for specific consultation.

The Harper Review recognised that an effective antitrust regime is a vital element of a strong economy that drives growth and innovation. It sought to identify inefficient regulatory barriers across the economy that reduced productivity. It recognised that an effective antitrust framework will support the Australian Government’s commitment to promote business-based research, development and innovation; rather than stifle it.¹

Consistent with this context, it is clear that innovation is a key item on the Harper Review’s agenda. A number of the Harper Review’s recommendations relate directly to deregulating state-based regulation that may hinder innovation and productivity, such as planning and zoning regulation, restrictive taxi / ride-sharing regulation, restrictions on trading hours, and removing restrictions on the ownership and location of pharmacies. The Government proposes to consult further with the states and territories on deregulation, including funding state and territory reform. Further, and of national significance, recommendations on healthcare reform and road transport industries will be adopted, with these sectors fundamental to supporting national growth.

A contentious area of reform, which sits at the heart of innovation, is the proposed removal of the protection intellectual property enjoys from competition laws in Australia. This proposal does not have outright support from the Government, and will be subject to a Productivity Commission review. Reform in this sector has been debated for some time, with arguments that the removal of the protection will stifle innovation.

The Harper Review made a number of recommendations to amend the Competition and Consumer Act 2010 (CCA), the law governing Australia’s antitrust regime. The implications of these proposed amendments are not only of significance to Australian businesses, but to any company that has operations which affect a market in Australia.

Cartel conduct

• Amending the definition of “competition”: Currently, the ambit of the law is ambiguous as to whether “competition” extends beyond goods or services imported or rendered from overseas, to those that are a credible threat of being imported. The extension of the definition clarifies that the bounds of competition may not be restricted to Australia and recognises the globalisation of trade. Importantly, the extension of the bounds of competitive conduct has the potential to capture overseas conduct, which in the context of alleged cartel conduct, is a welcome expansion by the Australian regulator.
• Broadening the joint venture exception to cartel conduct: Australia’s cartel conduct provisions are overly complex compared to its international counterparts, including the Sherman Act. Further, the prescriptive nature of the Australian prohibition may capture agreements that are not necessarily “hard core” cartels, such as an arrangement involving price or market sharing between a retailer and a supplier (that has its own retail channel) that increases total production via new sales channels. This may be pro-competitive, but the current exceptions do not shield the entities from a per se prohibition of the law. The proposal also seeks to amend the joint venture exception to cartel conduct.

Other anti-competitive agreements

• Repeal of the price signalling provisions with a move to prohibit “concerted practices”: The CCA contains an express prohibition against the sharing of sensitive information in public or in private. This contentious law currently only applies to the banking sector and has never been acted upon by the ACCC. Concerted practice is a better-known concept, and the proposed legislative amendment will bring Australia into line with the European Union. The prohibition in Australia will also be subjected to a “substantial lessening of competition” test. Does this mean that the CP must be shown to have substantially lessened competition?
• Third-line forcing subject to a competition test: Third-line forcing is currently per se illegal in Australia. Adopting this recommendation will bring Australia’s approach into line with comparable jurisdictions such as the United States (US), Canada, and the EU.

The Harper Review went further to recommend the repeal of all prohibitions relating to exclusive dealing (also referred to as tying arrangements), including third-line forcing, proposing that such conduct is examined under a general prohibition against anti-competitive agreements between two or more parties. This further recommendation was not outright supported by the Government, but will be considered in further public consultation.

• Resale price maintenance and immunity from prosecution: In Australia, resale price maintenance is per se illegal.  Retaining the prohibition is consistent with other jurisdictions such as the UK and the EU. However, immunity from prosecution for resale price maintenance conduct will now be notifiable to the Australian regulator, which provides a simpler, quicker and less resource intensive approach to obtaining immunity.

ACCC processes (including merger clearance)

• Streamlining and simplifying the formal merger review process: Currently, parties seeking merger clearance in Australia have three options: the ACCC’s informal clearance process; the ACCC’s formal clearance process; or, the Australian Competition Tribunal’s authorisation process. The Harper Review’s recommendation is to designate the ACCC as the decision-maker at first instance, and to broaden the clearance test to include a “public benefit” test. The expansion of the ACCC’s power to make decisions in the first instance including a public benefit test may entice parties to obtain clearance through the formal clearance process, as currently the majority of merger clearances are obtained on an informal basis. Against the ACCC’s current assessment of a substantial lessening of competition, the new avenue may provide parties with an incentive to obtain sign off from the regulator in circumstances where the public benefit will outweigh any competition issues that exist.
• ACCC power to make block exemptions: The ACCC currently has no power to make block exemptions. This recommendation will give the ACCC power to create safe harbours for certain conduct or categories of anti-competitive agreements. This amendment would be consistent with the position in the UK, EU and Singapore which all empower either the regulator or the government to exempt certain conduct from prosecution.
• Reliance on admissions and findings of fact by the court: Admissions of fact in a non-contested proceeding brought by the ACCC could be used to establish the same fact in private proceedings against the same defendant if this amendment is implemented. This may encourage private parties to initiate litigation on the back of ACCC proceedings. This amendment would add another factor for parties to consider when contemplating settlement with the regulator, particularly for large cross-border cartel matters. It also has the potential to increase private class action claims for damages.

The Government also indicated a number of recommended legislative changes that require further consultation before it will support them. These include:

• Overseas conduct that harms competition in an Australian market: Currently governmental consent is required if a party wishes to initiate proceedings regarding conduct that occurs outside Australia. No comparable overseas jurisdictions require this. The Harper Review recommended that this requirement be removed. The Government recognised the need to remove barriers for private parties to access the legal system but did not outright endorse the recommendation and will consult further on this issue.
• Misuse of market power  - an “effects” test: Currently, the prohibition against “monopolization” or “abuse of dominance” does not require an assessment of the effect or likely effect of the conduct. Rather, the legal test is whether a firm with “market power” has “taken advantage” of that power for one of three prescribed “purposes”.

Many international jurisdictions do not require “purpose” or intent to be established to determine whether particular unilateral conduct is illegal. The prohibition against monopolization in the US includes an examination of the intention of the accused (purpose) in the context of examining whether the conduct in question amounts to monopolization or an attempt at monopolization, but it is not the sole determinative factor.

The misuse of market power amendment – to introduce an effects test – is the most controversial of the Review’s recommendations and has split the Australian business community. This recommendation created a reform bottleneck. The Government has referred this recommendation for further consultation to allow for the remainder of the proposals to be implemented.

• Regulation of international liner shipping: Entities operating in international liner shipping are currently granted immunity from prosecution for engaging in cartel conduct in some circumstances. While the Government has not supported the outright repeal of the exemption from Australian competition laws, it will consider how the block exemption proposal can be used to ensure that shipping routes to and from Australia continue to be reliably and competitively serviced. By comparison, in the EU international liners are not regulated by sector specific laws anymore and are covered by general competition law. Inconsistencies between jurisdictions may result in a disconnect in laws that create inefficiencies for a mobile, global industry.
• Intellectual property exception for anti-competitive agreements: Certain anti-competitive agreements are exempt from the application of the restrictive trade practices provisions where they relate to intellectual property. The Government has commissioned a review of the intellectual property regime, which will go beyond purely antitrust implications. This intellectual property exception is a unique feature in Australian and New Zealand competition law. Given the global nature of intellectual property, removal of this exception will expose industries which are patent dominant, to the application of antitrust law, such as pharmaceuticals.

The Review was a significant root and branch review of the Australian legal and policy framework for antitrust and competition law. The recommendations were extensive and mostly endorsed by the Government. Some more difficult issues such as remodelling the ACCC and reframing the prohibition against unilateral conduct require further consultation before the Government’s position will become clear.

Given the range of recommendations varying in complexity, the Government has not provided a timeframe for implementation. It is likely to be a year away before legislation to amend the CCA is introduced into parliament. In some cases these amendments will bring Australia into line with other global jurisdictions, which eases the regulatory complexity for global companies. However, the divergence in many areas of the law will continue to ensure that the application of an antitrust regime in one jurisdiction cannot be directly relied upon to ensure that culpability in Australia will be avoided.