In this update we take a brief look at what this year holds for competition law. Some key pieces of litigation, continued review and the impact of the global financial crisis on merger analysis are likely to be front of mind in 2009.
PART II DEVELOPMENTS
Part II of the Commerce Act contains the provisions that stop competitors forming anti-competitive arrangements or unlawfully exercising market power.
Part II - Cases
The Commerce Commission's (Commission) various proceedings against airlines for alleged cartel behaviour in the markets for air cargo could well answer some key questions regarding the scope of the Commerce Act. For example, what is a market in New Zealand? Are documents held overseas and generated outside of New Zealand required to be provided to the Commission?
On the issue of jurisdiction, another decision of the Courts to watch out for is the judgment of the Court of Appeal in Commerce Commission v Koppers Arch Wood Protection (NZ) Ltd. In the High Court decision (reported at  2 NZLR 805), his honour Justice Williams appeared to extend the existing test to determine whether an overseas resident was a 'necessary or proper party' to a claim by the Commission for alleged price fixing. It will be interesting to see whether the Court of Appeal take a similar view.
Other important cases/proceedings to keep an eye on in 2009 are:
- Interchange fee proceedings - Last year the Commission filed proceedings alleging that various members of the Visa and Mastercard schemes breached the Commerce Act by fixing or being party to fixing the level of interchange fees. Civil proceedings by retailers are also afoot. By volume of transactions, the action by the Commission is the largest that it has ever initiated. The case brings into sharp focus the potential broad scope of the price fixing provisions of the Commerce Act.
- Visy proceedings - At the end of 2007, the Commission issued proceedings against Visy Australia and Visy New Zealand as well as four executives for collusive activities in the corrugated cardboard market. Visy New Zealand has filed its statement of defence while Visy Australia and the four executives are protesting jurisdiction.
- AstraZeneca - Last year AstraZeneca challenged an information gathering notice issued by the Commission under section 98 of the Commerce Act. AstraZeneca argued that the Commission had no jurisdiction to issue the notice because any potential Commerce Act issue would be covered under section 53 of the New Zealand Public Health and Disability Act (which excludes from the Commerce Act, among other things 'any act, matter, or thing, done by any person for the purposes of entering into an agreement with Pharmac relating to Pharmaceuticals'). AstraZeneca was unsuccessful in both the High Court and Court of Appeal. We understand that AstraZeneca has sought leave to appeal the case to the Supreme Court.
- Telecom 0867 - The Commission alleged that Telecom contravened section 36 of the Commerce Act (prohibiting the misuse of market power) when it introduced its 0867 package in 1999. Last year the High Court found against the Commission. The Commission has appealed the decision to the Court of Appeal. The case is likely to be important in defining the scope of section 36 and the very difficult boundary between legitimate competitive behaviour by a large firm and misuse of market power.
Part II - Reviews
Early this year, the Commission announced that it was reviewing its leniency policy. In a nutshell, the policy allows a party to an undiscovered cartel to approach the Commission with information about the cartel in exchange for the Commission agreeing to take no action against that party.
While the contents of the review are yet to be announced, we suspect it will consider issues such as whether New Zealand should adopt a 'marker' system for those who make enquiries regarding the availability of leniency. It might also consider the extent to which a graduated approach to leniency for parties other than the initial applicant should be adopted under the leniency policy (currently only the first in the door is entitled to the benefit of the leniency while other parties must rely on the cooperation policy for any reduction in penalty). The extent to which the current processes are sufficient to protect parties from discovery obligations in other jurisdictions (in particular in respect of class action suits in the United States) should also be covered. Finally, we anticipate that issues of detail such as the status and representation of directors/employees of the applicant, the form of leniency agreement and information on the Commission's website will also be addressed.
Although there are no formal proposals in New Zealand to criminalise cartel conduct, given recent developments in Australia in this area, it will be interesting to see whether the scope of the review extends to discussing the interaction of the leniency policy with criminal sanctions.
Another review relates to section 36 of the Commerce Act (misuse of market power) where the Commission has appointed a panel of experts to assess a range of matters such as the purpose of the section, the effectiveness of the current provisions and the effectiveness of the Commission's enforcement actions under the provisions. We understand that the review is at an early stage with no formal announcement yet on the make-up of the panel. Watch this space.
Finally, it will be interesting to see the new government's appetite for the Commerce Commission (Information Disclosure and Fees) Bill, which permits the Commission to share confidential information with overseas regulators. The Bill was introduced to parliament prior to the election but has not yet had its first reading.
PART III & V DEVELOPMENTS
Part III of the Commerce Act regulates business acquisitions. An acquisition of assets or shares is prohibited if it substantially lessens or is likely to substantially lessen competition in any market. Among other things, Part V contains the clearance and authorisation processes.
Part II & V - Clearance decisions and cases
It will be interesting to see whether the number of applications for merger clearance declines in 2009. While merger and acquisition activity is certainly down, in our experience in times of economic hardship you will often see consolidation in industries where potential competition issues exist. Unsurprisingly we would expect to see the 'failing firm' argument increasingly being put to the Commission. In essence this argument states that an acquisition will not result in a lessening of competition because the firm will, in any event, cease to be an independent competitor. The challenge for parties seeking to run these arguments will be satisfying the Commission that the chance of the firm surviving, absent the acquisition, is indeed remote (i.e. there is no real prospect of survival).
2009 will also see the Commission's new merger process guidelines being put to the test. Already we have seen the Commission publish two statements of preliminary issues in relation to applications for clearance. We believe these promote transparency and provide a useful insight for third parties into the Commission's approach to a merger.
Two clearance applications were declined in the second half of 2008 and at the time of writing, the parties were still considering whether or not to appeal to the High Court.
Part III & V - Reviews
You may recall that Ministry of Economic Development (MED) produced a discussion paper in 2006 which, among other things, floated a number of changes to the clearance and authorisation processes (including introducing a clearance process for restrictive trade practices). Following submissions, the MED noted in 2007 that:
'Submissions on the review of Part 5 indicate that while there are some standalone, administrative and low level policy issues that can be progressed quickly; there are several interdependent issues that are potentially bigger than originally thought and we will require additional time to develop robust policy proposals'.
Given the issues generally facing the business community in the current environment, we suspect that any review of Part 5 will be pushed down the priority list.
In the interim, the Commission is aware of the issues with its authorisation process which can be used where acquisitions or trade practices give rise to public benefits which outweigh any loss of competition. The process is currently very expensive and time consuming. Accordingly, we understand that the Commission is developing proposals for a more streamlined process (to the extent it is able within current legislation) details of which should be released within the next few months. Best wishes for 2009 and as always we will keep you posted on new developments.
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