Australia: Misuse of market power reforms pass Senate

Last Updated: 22 August 2017
Article by Paul Burton and Kirsten Webb

For the first time in Australia, firms with market power will now need to carefully consider whether the conduct they engage in, or propose to engage in, could be said to have the purpose, or have or be likely to have the effect, of lessening competition.

Changes to Australia's misuse of market power laws are another step closer, with the Competition and Consumer Amendment (Misuse of Market Power) Bill 2017 passing the Senate on 14 August 2017.

The Bill, introduced into the Parliament on 1 December 2016, represents the implementation of one of the significant competition reforms recommended by the Harper Competition Policy Review. The effect of these amendments is to expand the scope of section 46 to target conduct by corporations with substantial market power.

The amendments will not become law until the other Harper-related amendments in the Competition and Consumer Amendment (Competition Policy Review) Bill 2017, currently before the House of Representatives are enacted and commence.

Changes to section 46 of the Competition and Consumer Act 2010

The revised section 46 will prohibit a corporation that has a substantial degree of power in a market engaging in conduct that has the purpose or effect of substantially lessening competition in a market in which the corporation with market power (or a related body corporate) supplies or acquires goods or services.

The new section 46 represents a significant change to the misuse of market power prohibition; it:

  • introduces, for the first time, an "effects test" into section 46. Conduct that has or is likely to have the effect of substantially lessening competition (and no longer just such a purpose) will now be caught;
  • strong>omits the "take advantage" element of section 46. Courts will no longer be required to pose the question: "how would the firm have acted if it lacked its market power?"; and
  • removes the "Birdsville amendments", which were made in 2007 to prohibit firms with a substantial market share of the market engaging in below cost pricing for a sustained period of time.

One important change from earlier versions of the Bill is that section 46 will be limited to prohibiting a firm with market power engaging in conduct that has an anti-competitive purpose or effect only in those markets in which the firm (or a related body corporate) supplies or acquires goods or services (or is likely to do so), rather than the much broader notion of "any other market".

The amendments are expected to be welcomed by small businesses that have long argued for legislative change, and embraced by the ACCC that has had mixed success over the years in enforcing the current misuse of market power prohibition.

What's still to be passed: authorisation also to be made available

The related Competition and Consumer Amendment (Competition Policy Review) Bill 2017 would also affect section 46. If passed, it would make authorisation available for conduct which might otherwise contravene section 46 of the CCA.

Applicants for an authorisation will need to demonstrate that the proposed conduct either:

  • would not have the effect, or likely effect, of substantially lessening competition; or
  • would result, or be likely to result, in a benefit to the public which would outweigh the detriment to the public that would result, or would be likely to result, from the conduct.

Review your conduct to avoid breaching the new misuse of market power reforms

Many firms are likely to already satisfy the test of possessing a substantial degree of power in a market.

However, unlike the current state of the law on section 46 of the Competition and Consumer Act, for the first time in Australia, firms will now need to carefully consider whether the conduct they engage in, or propose to engage in, could be said to have the purpose, or have or be likely to have the effect, of lessening competition.

Inevitably these changes are likely to result in some types of conduct that might not currently infringe section 46 as being potentially at risk of infringing section 46 in the future.

Businesses should start getting ready for these changes, which are likely to commence in the first half of 2018.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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