31 October 2014
Competition shake-up: The draft Harper Report
As part of its election promises, the Liberal Party pledged to carry out a review of the competition policy in Australia. This resulted in the formation of a review panel chaired by Professor Ian Harper, a leading economist (Harper Panel).
The Harper Panel released its Draft Report about competition policy on 22 September 2014. The 52 recommendations in the Draft Report have been made following more than 300 submissions received from interested stakeholders. Interested parties have until 17 November 2014 to lodge submissions, with the Final Report anticipated to be released in March 2015.
The Draft Report identifies three major forces affecting Australia’s economy that will influence whether our competition policies, laws and institutions are fit for purpose. These major forces, which underpin the review, are:
the rise of Asia and emerging economies;
increasing demands of an ageing population; and
the digital revolution and new technologies disrupting the traditional marketplace.
The 52 recommendations address a range of issues including cartel conduct, misuse of market power, parallel importing, mergers and enforcement of competition law. The Draft Report covers various industries such as transport, energy, retail and pharmacy.
While there are a wide range of recommendations, which are still only in draft form, we have outlined some of the proposed recommendations below.
Misuse of market power
This area has been of particular interest in recent years, particularly with the ACCC’s investigation into the grocery market.
The Harper Panel has recommended changing the focus of the section 46 ‘misuse of market power’ provisions to protect competition and not just individual competitors. This means reframing section 46 of the Competition and Consumer Act 2010 (Cth) (CCA) and prohibiting a corporation with a substantial degree of power from engaging in conduct if it has the purpose, would have or be likely to have the effect of substantially lessening competition.
The Harper Panel has noted that reframing this section may result in pro-competitive conduct being captured inadvertently. To address these concerns, the Harper Panel suggests that a defence be introduced so that the ‘misuse of market power’ prohibition would not apply if the conduct in question:
would be a rational business decision or strategy by a corporation without a substantial degree of power; and
the effect or likely effect of the conduct would be to benefit consumers in the long term.
While the Harper Panel supports the intent of the existing cartel conduct prohibitions, including the combined criminal and civil sanctions that are imposed, it believes that the provisions are overly complex and should be simplified. In particular, the Harper Panel recommends that:
the provisions should only apply to cartel conduct affecting goods or services supplied or acquired in Australian markets;
the provisions should be confined to parties that are actually competing against each other, rather than if the competition is only a mere possibility;
a broad exemption should be included for joint ventures and similar forms of business collaboration;
an exemption should be included for trading restrictions that are imposed by one firm on another in connection with the supply or acquisition of goods or services (as that conduct is already prohibited under section 47 of the CCA if it has the purpose or effect of substantially lessening competition) ; and
the prohibition against exclusionary provisions be removed from the CCA, as the conduct covered by those provisions is materially the same as cartel conduct in the form of market sharing.
Changing technology and consumer purchasing practices has meant that current restrictions on parallel imports can easily be circumvented. For instance, online stores can circumvent restrictions by shipping books from overseas warehouses to customers in Australia.
The Harper Panel has recommended removing all remaining restrictions on parallel importing unless they are:
in the public interest; and
the objectives of the restrictions can only be achieved by restricting competition.
We note that there are some mechanisms still available to trade mark owners to prevent parallel imports of trade marked goods into Australia. It is not clear whether the recommendations will affect these remedies.
This proposed competition law shake up covers many more issues than what we have outlined in this bulletin.
The Harper Panel has invited submissions on the Draft Report from interested parties. Submissions must be lodged by 17 November 2014. The release of the Final Report is due in March 2015.
We will provide further comments about the review over the coming months.
Author: Michael Cossetto