A market failure framework for assessing authorisation applications: What does it mean for applicants?
On 6 May 2013, the Australian Competition and Consumer Commission (ACCC) released the updated Draft Authorisation Guidelines (Draft Guidelines).1 The Draft Guidelines aim to provide, in the words of ACCC Commissioner Dr Jill Walker, an "updated guidance on the ACCC's approach [to assessing applications for authorisation] based on its recent experience and relevant determinations by the Australian Competition Tribunal."2 After consultation, the Draft Guidelines will replace the ACCC's current Guide to Authorisation released in 2007 and subject to only minor amendment since this time (Existing Guidelines).3 This update summarises the key changes to the ACCC's approach to authorisation since the original release of the Existing Guidelines.
The Draft Guidelines suggest that in making any future authorisation application, applicants should:
The Competition and Consumer Act 2010 (Cth) (Act) allows a business to apply for authorisation to the ACCC to lawfully engage in particular conduct which may otherwise be in breach of the Act or be at risk of breaching the Act. Applications may be made for conduct including anti-competitive agreements, secondary boycotts, exclusive dealing, resale price maintenance, price-signalling and information disclosures. Generally speaking the statutory test for the grant of authorisation by the ACCC is whether the likely public benefits flowing from the relevant conduct outweigh the likely public detriments.
KEY CHANGES TO THE ACCC'S APPROACH TO AUTHORISATION
Set out below is a summary of the key changes to the ACCC's approach since the release of the Existing Guidelines now embodied in the Draft Guidelines.
Addressing market failure
The ACCC states that a key change in the Draft Guidelines is the explanation of the ACCC's current practice of adopting a market failure framework for assessing public benefits and public detriments.4 The Existing Guidelines do not explicitly state that market failure is a relevant consideration.
Part of the ACCC's assessment of the authorisation application will consider whether there is a market failure or market imperfection that the proposed conduct seeks to address. Although the existence of market failure does not necessarily result in authorisation being granted, the ACCC points out that many common public benefits arise through addressing market failure. Furthermore, when it comes to balancing the public benefits and public detriments, again the ACCC proposes to consider the costs of addressing a market failure such as restricting competition against the benefits of addressing a market failure.
The Existing Guidelines describe the ACCC approach as involving the identification of the public benefits and public detriments of the proposed conduct (both economic and noneconomic) and then the assessment of the application against the statutory test using the "with and without test." In so doing, the Existing Guidelines contemplate that market definition will only sometimes be considered, and only as part of the process to determine the public detriment of lessening competition.
In contrast, the Draft Guidelines state that the ACCC will assess claims of public benefits and detriments within the relevant "competitive environment" which requires identification of areas of competition that may be affected by the proposed conduct. The ACCC states that determining the competitive environment may involve defining the market and will provide a starting point for identifying potential areas of market failure. This suggests that market definition has a greater role to play in the market failure framework, in particular in identifying and assessing any public benefits arising from any identified failure addressed by the proposed conduct, rather than simply assisting with the lessening of competition assessment as contemplated by Existing Guidelines.
Focus on economic efficiency
It is settled law that public benefits include economic and non-economic benefits. The Existing Guidelines provide several examples of cases involving non-economic public benefits where authorisation has been granted. Examples of noneconomic public benefits include improving public safety and promoting sport. However, the Draft Guidelines focus on economic public benefits. Examples of economic public benefits include reducing transaction costs through collective bargaining arrangements or addressing an environmental externality by imposing an industry levy. The ACCC states that most public benefits it accepts can be "attributed to improvements in economic efficiency through addressing a source of market failure or market imperfection, broadly construed."5
Where necessary, the ACCC already considers the relevant areas of competition as a preliminary consideration. Also, many previous authorisation applications are applications to authorise conduct that seeks to address a market failure or market imperfection. However, there are still a few instances of recent authorisations where the ACCC does not appear to have used a market failure framework.6 For example, in granting the Australian Dental Association's (ADA's) application for authorisation to enable dentists to reach agreement as to fees within a shared practice where at least one of the parties is a member of the ADA, the ACCC focused on the non-economic public benefits that would arise if dentists in shared practices could reach agreement as to fees.7
The Medicines Australia Tribunal decision
The ACCC's Draft Guidelines also include changes to reflect the Medicines Australia Tribunal decision8 in 2007 after the release of the Existing Guidelines, including in particular the following findings of the Tribunal on the ACCC's authorisation power:
- The power to grant authorisation is discretionary and the ACCC does not need to grant authorisation even where the statutory tests are satisfied.
- There are circumstances where the ACCC can and is likely to impose conditions but the ACCC should not use this power to substantially redraft or redesign proposed conduct just to make the conduct better.
- The "with and without" test requires the ACCC to compare the likely future with and without the proposed conduct. In the Draft Guidelines, consistent with the findings of the Tribunal, the ACCC states that this test can assist in determining whether the public benefits are likely or unlikely to exist without the proposed conduct and therefore what weight should be attached to them. Furthermore, if there are public detriments that are removed or mitigated in a future with the proposed conduct, they may be considered as an element of a public benefit.9
The ACCC has published the Draft Guidelines for consultation and is now requesting submissions from interested parties by 31 May 2013. Contact us if you have any queries about the Draft Guidelines or would like us to assist you to prepare a submission.
1A copy of the ACCC's Draft Authorisation Guidelines are available at https://consultation.accc.gov.au/communications/authorisation-guidelines.
2ACCC media release, 'ACCC seeks comment on revised authorisation guidelines', 6 May 2013.
3The Existing Guidelines were amended in 2010 to reflect the replacement of the Trade Practices Act 1974 with the Competition and Consumer Act 2010 on 1 January 2011 and further amended in 2011 by addendum to address changes in the ACCC's freedom of information obligations effected by amendments to the Freedom of Information Act 1982 by the Freedom of Information Amendment (Reform) Act 2010. A copy of the ACCC's Guide to Authorisation, December 2010 can be found here: http://transition.accc.gov.au/content/item.phtml?itemId=788405&nodeId=e1d948f4dc23703844c7217d60af30f2&fn=Guide%20to%20Authorisation.pdf and a copy of the ACCC's Guide to Authorisation Addendum, April 2011 can be found here: http://transition.accc.gov.au/content/item.phtml?itemId=788405&nodeId=3f37e2d8a0c9906aabbd4f1d4ceb42aa&fn=Guide%20to%20Authorisation%20Addendum.pdf
4ACCC, Draft Authorisation Guidelines, May 2013, p2.
5ACCC, Draft Authorisation Guidelines, May 2013, p54.
6See for example, authorisation applications which were granted: Australian Dental Association Inc. - Authorisation A91340 & A91341 accessed on 13 May 2013 at http://transition.accc.gov.au/content/index.phtml/itemId/1088219/fromItemId/401 858 and eRx Script Exchange Pty Ltd - Authorisation - A91348, accessed on 13 May 2013 at http://transition.accc.gov.au/content/index.phtml/itemId/1089686/fromItemId/401 858.
7ACCC, Final Determination: Australian Dental Association Inc. - Authorisation A91340 & A91341, 27 March 2013.
8Re Medicines Australia Inc  ACompT 4.
9ACCC, Draft Authorisation Guidelines, May 2013, pp49-50.
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