By Georgina Foster, Rowan McMonnies and Irena Apostopoulos (Baker McKenzie Sydney) Both the Federal and the State and Territory governments have enacted legislation for the purpose of prohibiting anti-competitive conduct and to protect consumers from unfair commercial practices in their dealings with business.
The main statute dealing with competition laws in Australia is the Federal Competition and Consumer Act 2010 (Competition and Consumer Act). Part IV of the Competition and Consumer Act is aimed at preserving and promoting competition in the marketplace by prohibiting or regulating anti-competitive agreements and conduct. Part IV of the Competition and Consumer Act consists of three divisions:
- Division 1, which contains criminal and civil prohibitions on cartel conduct;
- Division 1A, which contains prohibitions against anti-competitive price signalling and other information disclosures in certain prescribed markets; and
- Division 2, which contains prohibitions against a range of anti-competitive conduct, including misuse of market power, resale price maintenance, exclusive dealing, and anti-competitive mergers and acquisitions.
The Competition and Consumer Act is administered and enforced by the Australian Competition and Consumer Commission (ACCC). The ACCC has extensive powers to investigate anti-competitive conduct, including powers to require persons to furnish information, produce documents and attend for examination. The ACCC also has the power to obtain search warrants. In addition to its investigation and enforcement role, the ACCC has responsibilities in relation to merger clearances and the granting of authorisations and notifications, which provide an exemption from certain prohibitions. If the ACCC believes there has been a contravention of Part IV of the Competition and Consumer Act, it can bring proceedings in the Federal Court of Australia seeking penalties and other remedies against the primary contravener and other persons involved in the contravention. In February 2014, the ACCC issued its new Compliance and Enforcement Policy. Under the policy, the ACCC’s key enforcement tools include educational campaigns, voluntary industry self-regulation codes and schemes, administrative resolutions where possible, infringement notices, Section 87B court enforceable undertakings, working with other agencies, and legal proceedings where appropriate. The Compliance and Enforcement Policy also outlines the ACCC’s key competition law priorities, which include cartel conduct and international cartels that involve entities carrying on business in Australia; anti-competitive agreements; misuse of market power; and other matters that will (or have the potential to) harm the competitive process or result in widespread consumer detriment.
3.1 Cartel conduct
In July 2009, cartel conduct was criminalised in Australia. There are now parallel criminal and civil offences for making or giving effect to a contract, arrangement or understanding that contains a “cartel provision.” A “cartel provision” is a provision of a contract, arrangement or understanding between competitors that has:
- the purpose or effect, or likely effect, of fixing, controlling or maintaining prices;
- the purpose of restricting outputs in the production or supply chain;
- the purpose of allocating customers, suppliers or territories; and/or
- the purpose of rigging bids or tenders.
There are defences to the prohibitions on cartel provisions, including a defence for joint ventures. The maximum penalties for a criminal offence, for individuals, are imprisonment for a term of 10 years and/or a fine of 2,000 penalty units (AUD340,000). Civil proceedings for penalties, as well as private proceedings for damages and other remedies, can also be brought against persons who contravene the cartel offences. The maximum penalty for a civil offence for individuals is AUD500,000. The maximum penalty for a corporation for each criminal cartel offence or civil contravention (whichever applies) is the greater of AUD10 million or three times the value of the benefit gained from the anti-competitive conduct (or, if that cannot be determined, 10 percent of the corporate group’s annual turnover in Australia in the preceding 12 months). Other penalties include injunctions, orders disqualifying a person from managing corporations and community service orders. Prosecution of criminal offences will be undertaken by the Commonwealth Director of Public Prosecutions (CDPP). The CDPP is required to prove the charge beyond reasonable doubt. A Memorandum of Understanding between the ACCC and the CDPP details the roles and responsibilities of each agency in relation to the investigation and prosecution of cartel offences.
3.2 Price signalling
The Competition and Consumer Act includes two core provisions regarding the anti-competitive disclosure of pricing and other information:
- a per se prohibition against the private disclosure of pricing information between competitors which are not made in the ordinary course of business; and
- a prohibition against the disclosure of pricing or other information if the disclosure is made for the purpose of substantially lessening competition.
These prohibitions apply only to those classes of goods or services prescribed by regulation. As at January 2015, the prohibitions only apply to the banking sector.
3.3 Exclusionary provisions
Exclusionary provisions (or collective boycotts) are contracts, arrangements or understandings between competitors which have the purpose of preventing, restricting or limiting the supply of goods or services to a particular person or group, or have the purpose of preventing, restricting or limiting the acquisition of goods or services from a particular person or group. It is sufficient that at least two of the parties to the arrangement are competitive with each other in relation to the goods or services the subject of the restriction. Further, it is not necessary that the party who has dealings with the target of the boycott be one of the competitors. Exclusionary provisions are prohibited outright by the Competition and Consumer Act, regardless of their impact on competition. There are defences to the prohibition on exclusionary provisions for joint ventures.
3.4 Resale price maintenance
Suppliers of goods or services in Australia are prohibited from specifying a minimum resale price, and may not withhold supply on the basis that the reseller has refused to comply with a specified minimum resale price. Resale price maintenance is per se unlawful. It is, however, permissible for a supplier to specify a maximum price for resale, so long as this does not amount to a de facto actual price at which the reseller must sell. It is also permissible for a supplier to issue a recommended resale price provided that the price is a recommendation only and there is no obligation to comply.
3.5 Anti-competitive arrangements
The Competition and Consumer Act prohibits a contract, arrangement or understanding that has the purpose, effect or likely effect of substantially lessening competition in a market. The expression “arrangement or understanding” is interpreted broadly by the courts. There is no requirement that an arrangement be in writing or enforceable at law. All that is required is a “meeting of minds” between the parties.
3.6 Third line forcing
Third line forcing is one of a number of “exclusive dealing” prohibitions in the Competition and Consumer Act. It is the only type of exclusive dealing which is a per se breach of the Act. Third line forcing occurs when a corporation supplies goods or services, or offers a discount, rebate or credit on goods or services, on condition that the purchaser acquires other goods or services directly or indirectly from a third party. An exemption from the prohibition applies if the conduct involves related companies. It is possible to obtain statutory immunity for third line forcing conduct by notifying the ACCC of the conduct. The ACCC will allow the notification to stand so long as the public benefits of the conduct outweigh any anti-competitive detriments.
3.7 Exclusive dealing (other than third line forcing)
Exclusive dealing occurs where a supplier agrees to supply goods or services, or supply goods or services to a reseller at a particular price or with a discount, credit or rebate, on condition that it accepts some restriction on its ability to deal with those goods or services or on its freedom to supply or acquire goods or services from third parties. Exclusive dealing also occurs where a corporation acquires goods or services on the condition that the supplier accepts some restriction on who it supplies. Examples of exclusive dealing include:
- a restriction on the reseller acquiring competing products;
- a restriction on the reseller supplying the goods or services to particular customers or in particular places; and
- a restriction on the supplier selling to other resellers.
Refusal to supply or acquire on the grounds that the other party has not agreed to accept such conditions also constitutes exclusive dealing. Exclusive dealing (other than third line forcing) is prohibited only if it has the purpose or likely effect of substantially lessening competition in a relevant market.
3.8 Secondary boycotts
The Competition and Consumer Act prohibits two persons, acting in concert, from hindering or preventing a third person trading with a fourth person, where the purpose or likely effect of the conduct is to cause a substantial lessening of competition in any market in which the fourth person is involved. Trade unions engaging in boycotts are specifically addressed in Part IV of the Competition and Consumer Act.
The Competition and Consumer Act prohibits corporations with “a substantial degree of power in a market” from “taking advantage” of that power in that or any other market for the purpose of eliminating or damaging a competitor, preventing market entry, or deterring or preventing a person from engaging in competitive conduct in that or any other market (prohibited purpose). There is no specified market share threshold that establishes market power. The courts have defined market power as the ability to act free from the constraints of competition, in particular, in relation to price. However, when determining whether a corporation has a substantial degree of market power, a court shall have regard to the extent to which an entity is constrained by the conduct of:
- competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or
- persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market.
A court may also have regard to the body corporate’s power in the market, resulting from:
- any contract, arrangement or understanding or proposed contract, arrangement or understanding, that the body corporate or bodies corporate has, or may have, with another party or other parties; or
- any covenants, or proposed covenants, that the body corporate or bodies corporate is or are, or would be, bound by or entitled to the benefit of.
The Competition and Consumer Act contains a non-exhaustive list of factors that a court may consider in determining whether a corporation has taken advantage of its market power. Establishing a prohibited purpose is a fundamental element of determining whether or not a corporation has misused its market power. The prohibited purpose need not be the only motivating purpose to constitute a breach. It is sufficient if it is a substantial or operative purpose behind the conduct, despite the existence of other valid and lawful purposes or reasons. In the absence of subjective evidence, the courts may infer the corporation’s purpose from its conduct and from the surrounding circumstances.
4.1 Predatory pricing
In addition to the general misuse of market power prohibition, there is also a specific prohibition on predatory pricing by corporations with a substantial share of a market. Under this prohibition, a corporation that has a “substantial share of a market” must not supply, or offer to supply, goods or services for a “sustained period” at a price that is “less than the relevant cost” of supplying the goods or services for the purpose of:
- eliminating or substantially damaging a competitor in a market;
- preventing the entry of a person into a market; or
- deterring or preventing a person from engaging in competitive conduct in a market.
The predatory pricing prohibition does not require evidence of intended recoupment of losses for a contravention to be established. A corporation may contravene the prohibition even if it cannot, and may not ever be able to recoup losses incurred in supplying the goods or services.
The Competition and Consumer Act provides a number of exceptions to certain (but not all) prohibitions in Part IV of the Competition and Consumer Act on cartel and other anti-competitive conduct. These include:
- a contract of employment insofar as the contract relates to the remuneration, conditions of employment, hours of work or working conditions of employees;
- restraint of trade clauses for employees or independent contractors;
- a provision in a contract for the sale of a business or shares that is solely for the protection of the purchaser in respect of the goodwill of the business; and
- certain aspects of intellectual property licences.
The Competition and Consumer Act prohibits the acquisition of shares or assets if that acquisition would have the effect or likely effect, of substantially lessening competition in any market for goods or services in Australia. There are no compulsory financial or market share notification thresholds under the Competition and Consumer Act. Notification is a voluntary process at the parties’ discretion. However, the ACCC’s Merger Guidelines 2008 indicate that the ACCC will want to examine a merger where both of the following apply:
- the products of the merger parties are either substitutes or complements; and
- the merged firm will have a post-merger market share of greater than 20 percent in the relevant market/s.
The market share level of 20 percent is referred to as the ACCC’s “notification threshold.” If an acquisition does not reach this threshold, the ACCC is generally unlikely to make further enquiries. The Merger Guidelines 2008 also state that the ACCC will generally be less likely to identify competition concerns in situations where the Herfindahl-Hirschman Index (HHI), a measure of market concentration, is less than 2000. The HHI is calculated by adding the sum of the squares of the post-merger market shares of each competitor in the market. There are three types of voluntary notification to the ACCC: informal clearance, formal clearance and authorisation.
6.1 Informal clearance
Informal merger clearance is by far the most common option and encouraged by the ACCC. The ACCC’s Merger Review Process Guidelines 2013 provide guidance on ACCC processes for informal merger reviews. They are supplementary to the Merger Guidelines 2008, which deal with the analytical framework.
6.2 Formal clearance
The formal merger clearance process introduced in 2007 has not yet been applied. As at January 2015, merger parties have elected to proceed by way of an informal clearance. The ACCC’s Formal Merger Review Process Guidelines 2013 outline the process for applications for formal merger clearance. It provides that the ACCC must determine an application for formal clearance within 40 business days of receiving a valid application. This review period may be extended, either by agreement by a specified period, or unilaterally by the ACCC by a further 20 days in certain circumstances. If the ACCC refuses clearance, an applicant can apply to the Australian Competition Tribunal (Tribunal) for a review of this decision.
Under the Competition and Consumer Act the Tribunal has power to authorise a potentially anti-competitive merger where it is satisfied that the merger would result in such a countervailing benefit to the public that it should be allowed to take place. The authorisation process is time consuming and public and not commonly used in practice. It only tends to be used where there are competition concerns with a proposed merger. There are no penalties for failing to notify a transaction to the ACCC, since notification is voluntary. However, if a transaction is found to be in breach of the Competition and Consumer Act, financial penalties may be imposed (see the next section on penalties). The ACCC can also apply to the court for injunctions to prevent anti-competitive mergers from taking place and for divestiture orders if an anti-competitive merger has proceeded. Private parties cannot obtain injunctions to prevent an anti-competitive merger from taking place but can seek damages and other remedies for any loss or damage sustained as a result of the merger, as well as divestiture orders. The Competition and Consumer Act also prohibits certain acquisitions occurring outside Australia which have anti-competitive effects within Australia.
In certain cases, a corporation may apply to the ACCC for an authorisation in relation to proposed conduct which would otherwise breach Part IV of the Competition and Consumer Act. The ACCC may grant authorisation and thereby immunity for the conduct where the benefit to the public of the conduct outweighs the anti-competitive detriment. In addition, immunity may be obtained through an ACCC notification process for exclusive dealing conduct, as well as certain forms of collective bargaining conduct.
The Competition and Consumer Act is administered and enforced by the ACCC, although compliance with most sections can also be enforced by private action. The ACCC has become increasingly vigilant (and successful) in enforcing compliance with the Competition and Consumer Act. Serious cartel conduct will be referred by the ACCC to the CDPP for criminal prosecution. For a corporation, a breach of the civil prohibitions in Part IV of the Competition and Consumer Act (other than in relation to the prohibition on secondary boycotts) may lead to the following penalties per breach: up to AUD10 million per breach, or three times the value of the benefit received from the anti-competitive conduct or, if the value of the benefit cannot be determined, 10 percent of annual group turnover in Australia. In the case of secondary boycotts, the maximum penalty is AUD750,000. For an individual, the criminal penalties for criminal cartel offences are imprisonment for a term of up to 10 years and/or a fine of up to 2,000 penalty units (AUD340,000). The penalty for a civil offence is up to AUD500,000 per breach. A corporation (including its related bodies corporate) is prohibited from indemnifying its directors, officers or employees against any liability to pay a pecuniary penalty and for any legal costs incurred in defending or resisting proceedings in which the individual is found liable to pay a pecuniary penalty. The ACCC can also seek a range of other remedial orders, including injunctions, declarations, compensatory orders and orders disqualifying a person who has contravened or has been involved in a contravention of Part IV of the Competition and Consumer Act from managing corporations. Private actions (including class actions) may be brought against corporations and individuals who have contravened Part IV of the Competition and Consumer Act seeking damages, other compensation, injunctions and other remedial orders.
The ACCC has the Immunity Policy and Cooperation Policy for Cartel Conduct (Immunity Policy), which was updated in September 2014. Under this policy, immunity from ACCC prosecution is available to the first member of a cartel to apply for immunity, provided that at the time of application, the ACCC has not received written legal advice that it has sufficient evidence to commence proceedings. Immunity is also subject to compliance with certain other conditions, including that the applicant has not coerced others into participating in the cartel; provides full, frank and truthful disclosure; and provides full and expeditious ongoing cooperation to the ACCC. For criminal contraventions, the Prosecution Policy of the Commonwealth includes a specific section covering immunity for cartel conduct. This is essentially in the same terms as the ACCC’s Immunity Policy. The ACCC is responsible for granting immunity from civil enforcement proceedings and the CDPP for granting immunity from criminal proceedings (although the ACCC recommends to the CDPP whether immunity should be granted). As a matter of practice, applicants will need to apply for both civil and criminal leniency at the same time. The ACCC also has a Cooperation Policy for Enforcement Matters (Cooperation Policy), which sets out the ACCC’s position in relation to immunity and leniency applications resulting from cooperation in ACCC enforcement matters more generally. The Cooperation Policy applies to all anti-competitive conduct in contravention of the Competition and Consumer Act. The ACCC’s Immunity Policy and Cooperation Policy do not provide any protection against private actions.
The provisions of Part IV of the Competition and Consumer Act apply to conduct engaged in outside Australia by a company incorporated or “carrying on business” in Australia, or by an Australian entity or person ordinarily resident within Australia. If the anti-competitive conduct involves exclusive dealing or resale price maintenance, a less strict territorial nexus applies: those prohibitions apply to any person outside Australia provided that the person supplies the goods or services to persons within Australia.
The Australian Government established a review of Australian competition policy and law in 2014. The review panel, chaired by Professor Ian Harper, issued a draft report on 22 September 2014. The draft report included a wide range of recommendations, including proposed changes to the prohibitions against cartel conduct and misuse of market power. A final report is due to be presented to the Australian Government in March 2015.  The Trade Practices Act 1974 (Cth) was renamed the Competition and Consumer Act 2010 (Cth) with effect from 1 January 2011. [wpdm_package id=’4258′]