No one finds the law in relation to monopolization or abuse of
dominance in Australia and New Zealand (ANZ) to be very
satisfactory. Global businesses often have to adapt their
practices specifically for their ANZ operations especially in
relation to product distribution.
Enforcement officials (the ACCC and NZCC) are frustrated too:
although many private cases succeed, cases selected by them for
public enforcement of the monopolization standard generally fail.
Despite the policy intention that the law should protect the
competitive process, the way it is drafted makes it easier for
individual competitors to establish they, rather than the market as
a whole, was harmed.
There are several important features of the ANZ law that do not
work as well as international counterparts. Reform now can be
expected due to a recent judgment against the ACCC in a predatory
buy-side case, ACCC v Cement Australia, and the new
Government's so-called "Root and Branch Review" of
competition law.
Background to the ACCC v Cement Australia case
Buy-side cases are unusual in the competition law world. This case concerned the purchase by a cement company of fly-ash from power stations. A certain amount of fly-ash can be used as a cheap 'extender' in the construction industry when mixed with cement. The allegation was that a cement company with market power was too generous to sellers when it purchased all the readily available sources of fly-ash, thus preventing a smaller competitor from establishing its business. When the judge's full reasoned decision is released, this will be one of the few precedents concerning how to 'invert' standard monopoly concepts (here, predatory under-pricing) into monopsony concepts (predatory over-pricing).
ANZ approach to misuse of market power cases
The first difference between the ANZ and other standards that
tends to frustrate companies is that, in Europe and the U.S., the
focus is on what are the effects of conduct engaged in by large
firms. By contrast, the ANZ standard focuses on what was the
purpose of the conduct. This puts the internal emails and
business documents at the center of court cases where they are only
indirectly relevant in other jurisdictions. Internal
documents are at risk of creating exposure for large companies when
transactions are being negotiated and when rights under
pre-existing contracts are being exercised.
A difference that frustrates regulators is the requirement that
the plaintiff prove not only that a company had market power and
that it was used for an anticompetitive purpose but also that the
alleged conduct really did constitute a "taking
advantage" of market power. In other words, it is possible to
mount a defense that a non-dominant company somewhere else in the
world has engaged in similar conduct (for example that a
non-dominant firm in the same industry has a distribution network
with absolute territorial exclusivity). The implication that
can be made by the defendant is that, even if it has market power
and even if its internal documents show that the conduct was for an
anticompetitive purpose, the conduct engaged in was not done so as
a "taking advantage" of market power, but merely an
initiative that a non-dominant company might do.
A difference that frustrates clients and embarrasses the
Australian authority is that, in Australia predatory pricing cases,
the plaintiff does not need to establish that the defendant has a
substantial market degree of market power. Instead any
company with a substantial share (15%+) is at risk of breaching the
law if it prices below cost for an anticompetitive
purpose.
The judge in ACCC v Cement Australia has yet to publish
his reasoned decision, but he has released orders that already make
it clear the ACCC probably failed to prove the 'taking
advantage' or purpose elements of the
prohibition. Meanwhile, the ACCC was successful on the lesser
charge that contracts in question had the effect or likely effect
of substantially lessening competition, highlighting the problem
with the ANZ law. The misuse of market power prohibition is
assessed according to a standard that is quite different from
whether or not the conduct actually results in anticompetitive
effects.
Future reforms
This case comes at a time when a new Federal Government has been elected promising a legislative review designed to strengthen the law's ability to protect small business, and it has stated that the law concerning the misuse of market power will be a key topic for review. Under the Australia-New Zealand pact for Closer Economic Relations, any Australian competition law change triggers an obligation upon the New Zealand government to consider making the same change. Clients entering into long term contracts, or who are making long term decisions about how their products are distributed in ANZ, must both comply with the current law and anticipate the changes that may result from the reform that may be implemented arising from consideration by the legislative review committee of the decision in ACCC v Cement Australia.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.