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Competition and Consumer Amendment (Misuse of Market Power) Bill 2016

 

Introduction of the bill

The Government has introduced the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 into the House of Representatives. The Bill, if passed, would implement the Harper recommendations on section 46, including the introduction of an effects test.

Referred to the Economics Legislation Committee (referred 1 December 2016; reported: 16 February 2017) 

 

Referred to Committee

The bill was referred to the Economics Legislation Committee on 1 December 2016.

The Committee reported on 16 February with the majority recommending passage of the bill subject to some modification. The three recommendations made were:

  • Recommendation 1: The committee recommends that the proposed mandatory factors, asdrafted in subsection 46(2) of the bill, be removed.
  • Recommendation 2: The committee recommends that the government undertake a post-implementation review of the reforms to section 46 at least five years after commencement.
  • Recommendation 3: The committee recommends that the bill be passed.

See separate report page.

 

Current provision

(1) A corporation that has a substantial degree of power in a market shall not take advantage of that power in that or any other market for the purpose of:

(a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;

(b) preventing the entry of a person into that or any other market; or

(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

(1AAA) If a corporation supplies goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying the goods or services, the corporation may contravene subsection (1) even if the corporation cannot, and might not ever be able to, recoup losses incurred by supplying the goods or services.

(1AA) A corporation that has a substantial share of a market must not supply, or offer to supply, goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying such goods or services, for the purpose of:

(a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market; or

(b) preventing the entry of a person into that or any other market; or

(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

(1AB) For the purposes of subsection (1AA), without limiting the matters to which the Court may have regard for the purpose of determining whether a corporation has a substantial share of a market, the Court may have regard to the number and size of the competitors of the corporation in the market.

(1A) For the purposes of subsections (1) and (1AA):

(a) the reference in paragraphs (1)(a) and (1AA)(a) to a competitor includes a reference to competitors generally, or to a particular class or classes of competitors; and

(b) the reference in paragraphs (1)(b) and (c) and (1AA)(b) and (c) to a person includes a reference to persons generally, or to a particular class or classes of persons.

(2) If:

(a) a body corporate that is related to a corporation has, or 2 or more bodies corporate each of which is related to the one corporation together have, a substantial degree of power in a market; or

(b) a corporation and a body corporate that is, or a corporation and 2 or more bodies corporate each of which is, related to that corporation, together have a substantial degree of power in a market;

the corporation shall be taken for the purposes of this section to have a substantial degree of power in that market.

(3) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the court shall have regard to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of:

(a) competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or

(b) persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market.

(3A) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the court may have regard to the power the body corporate or bodies corporate has or have in that market that results from:

(a) any contracts, arrangements or understandings, or proposed contracts, arrangements or understandings, that the body corporate or bodies corporate has or have, or may have, with another party or other parties; and

(b) any covenants, or proposed covenants, that the body corporate or bodies corporate is or are, or would be, bound by or entitled to the benefit of.

(3B) Subsections (3) and (3A) do not, by implication, limit the matters to which regard may be had in determining, for the purposes of this section, the degree of power that a body corporate or bodies corporate has or have in a market.

(3C) For the purposes of this section, without limiting the matters to which the court may have regard for the purpose of determining whether a body corporate has a substantial degree of power in a market, a body corporate may have a substantial degree of power in a market even though:

(a) the body corporate does not substantially control the market; or

(b) the body corporate does not have absolute freedom from constraint by the conduct of:

(i) competitors, or potential competitors, of the body corporate in that market; or

(ii) persons to whom or from whom the body corporate supplies or acquires goods or services in that market.

(3D) To avoid doubt, for the purposes of this section, more than 1 corporation may have a substantial degree of power in a market.

(4) In this section:

(a) a reference to power is a reference to market power;

(b) a reference to a market is a reference to a market for goods or services; and

(c) a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, in that market either as a supplier or as an acquirer of goods or services in that market.

(4A) Without limiting the matters to which the court may have regard for the purpose of determining whether a corporation has contravened subsection (1), the court may have regard to:

(a) any conduct of the corporation that consisted of supplying goods or services for a sustained period at a price that was less than the relevant cost to the corporation of supplying such goods or services; and

(b) the reasons for that conduct.

(5) Without extending by implication the meaning of subsection (1), a corporation shall not be taken to contravene that subsection by reason only that it acquires plant or equipment.

(6) This section does not prevent a corporation from engaging in conduct that does not constitute a contravention of any of the following sections, namely, sections 45, 45B, 47, 49 and 50, by reason that an authorization or clearance is in force or by reason of the operation of subsection 45(8A) or section 93.

(6A) In determining for the purposes of this section whether, by engaging in conduct, a corporation has taken advantage of its substantial degree of power in a market, the court may have regard to any or all of the following:

(a) whether the conduct was materially facilitated by the corporation’s substantial degree of power in the market;

(b) whether the corporation engaged in the conduct in reliance on its substantial degree of power in the market;

(c) whether it is likely that the corporation would have engaged in the conduct if it did not have a substantial degree of power in the market;

(d) whether the conduct is otherwise related to the corporation’s substantial degree of power in the market.

This subsection does not limit the matters to which the court may have regard.

(7) Without in any way limiting the manner in which the purpose of a person may be established for the purposes of any other provision of this Act, a corporation may be taken to have taken advantage of its power for a purpose referred to in subsection (1) notwithstanding that, after all the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the corporation or of any other person or from other relevant circumstances.

 

Provision proposed by bill

(1) A corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in:

(a) that market; or

(b) any other market in which that corporation, or a body corporate that is related to that corporation:

(i) supplies goods or services, or is likely to supply goods or services; or

(ii) supplies goods or services, or is likely to supply goods or services, indirectly through one or more other persons; or

(c) any other market in which that corporation, or a body corporate that is related to that corporation:

(i) acquires goods or services, or is likely to acquire goods or services; or

(ii) acquires goods or services, or is likely to acquire goods or services, indirectly through one or more other persons.

(2) Without limiting the matters to which regard may be had in determining for the purposes of subsection (1) whether conduct has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market, regard must be had to the extent to which:

(a) the conduct has the purpose of, or has or would be likely to have the effect of, increasing competition in that market, including by enhancing efficiency, innovation, product quality or price competiveness in that market; and

(b) the conduct has the purpose of, or has or would be likely to have the effect of, lessening competition in that market, including by preventing, restricting, or deterring the potential for competitive conduct or new entry into that market.

(3)  A corporation is taken for the purposes of this section to have a substantial degree of power in a market if:

(a)  a body corporate that is related to that corporation has, or 2 or more bodies corporate each of which is related to that corporation together have, a substantial degree of power in that market; or

(b)  that corporation and a body corporate that is, or that corporation and 2 or more bodies corporate each of which is, related to that corporation, together have a substantial degree of power in that market.

(4)  In determining for the purposes of this section the degree of power that a body corporate or bodies corporate have in a market:

(a)  regard must be had to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of:

(i)  competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or

(ii)  persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market; and

(b)  regard may be had to the power the body corporate or bodies corporate have in that market that results from:

(i)  any contracts, arrangements or understandings that the body corporate or bodies corporate have with another party or other parties; or

(ii)  any proposed contracts, arrangements or understandings that the body corporate or bodies corporate may have with another party or other parties.

(5)  For the purposes of this section, a body corporate may have a substantial degree of power in a market even though:

(a)  the body corporate does not substantially control that market; or

(b) the body corporate does not have absolute freedom from constraint by the conduct of:

(i)  competitors, or potential competitors, of the body corporate in that market; or

(ii)  persons to whom or from whom the body corporate supplies or acquires goods or services in that market.

(6)  Subsections (4) and (5) do not limit the matters to which regard may be had in determining, for the purposes of this section, the degree of power that a body corporate or bodies corporate has or have in a market.

(7)  To avoid doubt, for the purposes of this section, more than one corporation may have a substantial degree of power in a market.

(8)  In this section:

(a)  a reference to power is a reference to market power; and

(b)  a reference to a market is a reference to a market for goods or services; and

(c)  a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, inthat market either as a supplier or as an acquirer of goods or services in that market.

 

Changes from Exposure Draft Legislation

Although the substance of the bill is largely consistent with Harper and the Exposure Draft legislation, sub-section (1) is now more convoluted and more restricted in its application.  

Exposure draft version of sub-section (1):

(1) A corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in that or any other market.

Bill version of sub-section (1):

(1) A corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in:

(a) that market; or

(b) any other market in which that corporation, or a body corporate that is related to that corporation:

(i) supplies goods or services, or is likely to supply goods or services; or

(ii) supplies goods or services, or is likely to supply goods or services, indirectly through one or more other persons; or

(c) any other market in which that corporation, or a body corporate that is related to that corporation:

(i) acquires goods or services, or is likely to acquire goods or services; or

(ii) acquires goods or services, or is likely to acquire goods or services, indirectly through one or more other persons.

The explanation for this in the EM is set out from para 1.40:

The Harper Review recommended reframing section 46 to prohibit a firm with a substantial degree of power in a market from engaging in conduct with the purpose, effect or likely effect of substantially lessening competition in any market. However, extensive consultation with stakeholders revealed a concern that the reference to ‘any market’ made section 46 excessively broad in scope.

To address this issue, the scope of section 46 is limited to those markets in which the corporation’s conduct is most likely to have a purpose, effect or likely effect of competition concern. In practice, it is unlikely that a corporation’s conduct will have a purpose, effect or likely effect of substantially lessening competition in an unrelated market without also having that purpose, effect or likely effect in one of the markets described in subsection 46(1). The provisions within subsection 46(1) limit the scope of section 46 to situations where there is an actual or likely supply or acquisition of goods or services, by the corporation or another prescribed entity.

...

 

Explanatory memorandum

An explanatory memorandum acommpanied the bill and can be found Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 page.

 

Second reading speeches

Kelly O'Dwyer MP (Higgins - Minister for Revenue and Financial Services

Kelly O'Dwyer introduced the bill on 1 December - her second reading speech is reproduced below: view source.

That this bill be now read a second time.

In 2014, the government fulfilled our election commitment and commissioned an independent review into Australia's competition framework: the Harper review. The Harper review was the first 'root and branch' review of Australia's competition laws for 20 years. Professor Ian Harper and the review panel consulted extensively with businesses, consumers, regulators and legal experts and found that the operation of section 46 was a concern for many.

I would like to take this opportunity to thank Professor Harper and his team for their efforts and due diligence in producing the Harper review.

Schedule 1 to this bill amends section 46 of the Competition and Consumer Act 2010, the misuse of market power provision, to better target anticompetitive conduct, better support procompetitive conduct, and simplify the provision.

The current section 46 prohibits corporations with substantial market power from taking advantage of its power for one of three specific purposes related to damaging an actual or potential competitor or preventing them from competing.

In its final report, the Harper review concluded that the current section 46 fails to adequately prevent the misuse of market power and is not reliably enforceable, for two key reasons.

Firstly, the current section 46 requires that a corporation 'take advantage' of its substantial market power. This is a poor test for distinguishing competitive from anticompetitive conduct. It permits a corporation with substantial market power to engage in highly anticompetitive conduct, merely because a corporation without substantial market power could commercially engage in the same conduct. The test does not recognise that conduct that is not anticompetitive when undertaken by a corporation that does not have market power can be anticompetitive when undertaken by a firm that does. This leaves a significant loophole in section 46.

Secondly, the current section 46 only prohibits conduct if the corporation acted with the purpose of damaging an actual or potential competitor. The Harper review found this focus to be inconsistent with the overriding policy objective of the act, which is to protect competition and not individual competitors. The reforms in this bill recognise that it is the competitive process that drives corporations to supply better goods and services and offer lower prices to consumers, and it is the competitive process that our competition laws need to protect.

The failure of section 46 to adequately prevent the misuse of market power allows anticompetitive conduct to slow the entry and expansion of new and innovative firms, delays the entry of new technologies into Australia and impedes economic growth in the long term.

The Harper review recommended amending section 46 to address these problems and strengthen the misuse of market power provision, by refocusing on conduct with the purpose, effect or likely effect of substantially lessening competition. The government acknowledged the importance of this issue for businesses and consumers, and conducted a lengthy consultation process on a range of alternatives before concluding that the recommendation of the Harper review represented the best option to reform the law.

As amended, section 46 will prohibit corporations with substantial market power from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition in markets in which they directly or indirectly participate.

The amendment is specifically designed to minimise any uncertainty involved with changing the law, by using existing competition law concepts such as 'substantially lessening competition' and by providing anticompetitive and procompetitive factors to guide consideration of the purpose, effect or likely effect of conduct.

As a result of this reform, section 46 will better target anticompetitive conduct and better support procompetitive conduct. Section 46 will be more reliably enforceable and promote strong competition in Australian markets, benefiting both consumers and the economy.

This reform is an important step to ensure Australia has the best possible competition framework to support innovation, enhance competition and boost economic growth and jobs. It is a key part of the government's response to the Harper review, which is all about increasing choice and delivering better services for consumers.

An effective misuse of market power provision is an important and necessary part of competition law, particularly for Australia's more than two million small businesses which make up more than 97 per cent of all businesses.

While there are some in this chamber who would prefer to keep the current drafting of section 46 and not see Australian businesses able to compete on a level playing field, this government recognises that reforming competition law is one of the best options we have to lift long-term productivity growth and generate economic benefits that can be shared by everyone.

The reforms in this bill will more effectively focus section 46 on the long-term interests of consumers, improving the law's clarity, effectiveness and force. They will provide another tool for regulators to ensure Australian businesses can flourish; new and innovative firms can enter new markets and expand; new technologies can be introduced into Australia; and consumers can receive the best quality products at the lowest price.

Most importantly, this reform will ensure the focus of the law is on protecting the competitive process to the benefit of consumers; it is not about protecting individual competitors or a particular group of businesses.

These amendments will make markets work better for the benefit of all Australians and help to lift our long-term productivity growth. They will ensure that all business can compete on a level playing field, rewarding innovative and dynamic businesses that provide the best services at the lowest cost. This will benefit households by giving them more choice and better value products and services.

Schedule 2 to this bill makes consequential amendments to repeal the telecommunications-specific anti-competitive conduct laws in divisions 2 and 3 of the act. With the amendment of section 46 and the development of competition in telecommunications in the past 20 years, these rules under part XIB are no longer necessary or appropriate.

Following the proposed amendments, any misuse of market power in the telecommunications sector will be managed by the same general competition laws applying to other sectors of the economy, and which will be strengthened by the enhancements being made to section 46.

The Australian Competition and Consumer Commission supports these amendments and retains other extensive powers to deal with other competition concerns in telecommunications.

Full details of the measure are contained in the explanatory memorandum.

I commend the bill to the House.

Debate adjourned.

 

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