Monday, 29 September 2014

A meeting of minds

Last week Australia's Competition Policy Review came out with its excellent draft report (report here, my high level reaction here).

I said I'd come back to some specifics in the report, and there's one in particular that stands out as relevant to us here in New Zealand - and that's the Review's conclusion on s46 of the Aussie Competition and Consumer Act (CCA), which is the equivalent of  s36 of our Commerce Act. Most people following this blog won't need a refresher on what s36 is, but just in case it's the bit in our Commerce Act that says
36 Taking advantage of market power
...
(2)A person that has a substantial degree of power in a market must not take advantage of that power for the purpose of—
(a) restricting the entry of a person into that or any other market; or
(b) preventing or deterring a person from engaging in competitive conduct in that or any other market; or
(c) eliminating a person from that or any other market.
The thing is widely seen as a waste of space as it stands, partly because of the language of the section, partly because of how the New Zealand courts have interpreted it, and all against a background of being an intrinsically difficult thing to police in the first place.

Earlier this year our Productivity Commission, in chapter 7 of its report on Boosting Productivity in the Services Sector (available here), said (p135) that "The Government should review section 36 of the Commerce Act 1986 and its interpretation", that "The review of s 36 should take account of the review of competition policy in Australia, with a view to achieving a consistent approach", and that
The review of s 36 should include consideration of the merits of:
 a more flexible approach where courts do not rely on a single counterfactual test for
an abuse of monopoly power [this is a reference to the, shall we say, idiosyncratic approach of the New Zealand courts];
 more of an “effects” approach to gauge whether conduct has harmed dynamic
efficiency, and
 providing for an efficiency defence in cases where the conduct of a firm with substantial market power fails a primary test that it is harming competition.
Lo and behold, that's pretty much exactly where the Aussies have fetched up.

They agree that the language of the section is off kilter, for two reasons.

One is that "take advantage" bit: as they say (p208), "Both the courts and the legislature have wrestled with the meaning of the expression ‘take advantage’ over many years. Its meaning is subtle and difficult to apply in practice".

And then there's the wording of the "purpose" bit. As the Review says (p210),
Presently, the purpose test in section 46 focuses upon harm to individual competitors — conduct will be prohibited if it has the purpose of eliminating or substantially damaging a competitor, preventing the entry of a person into a market, or deterring or preventing a person from engaging in competitive conduct. Ordinarily, competition law is not concerned with harm to individual competitors. Indeed, harm to competitors is an expected outcome of vigorous competition. Competition law is concerned with harm to competition itself — that is, the competitive process.
So they've suggested (p210) skittling "take advantage" completely - excellent - and rewriting the rest of it with more of an "effects" approach (as our Productivity Commission suggested was worth looking it) so as
to prohibit a corporation that has a substantial degree of power in a market from engaging in conduct if the proposed conduct has the purpose, or would have or be likely to have the effect, of substantially lessening competition in that or any other market
As they say, do that, and then s46 becomes
the standard test in Australia’s competition law: purpose, effect or likely effect of substantially lessening competition. The test of ‘substantially lessening competition’ would enable the courts to assess whether the conduct is harmful to the competitive process
And finally they've come up with much the same sort of backstop defence for a business that our Productivity Commission flagged, namely
the primary prohibition would not apply if the conduct in question:
• would be a rational business decision by a corporation that did not have a substantial degree of power in the market; and
• would be likely to have the effect of advancing the long-term interests of consumers.
The onus of proving that the defence applied should fall on the corporation engaging in the conduct
Currently MBIE are beavering away in the background on a review of s36, after their Minister, Steven Joyce, picked up on the Productivity Commission's recommendation to have a rethink.

Save the time and money. I say we send the Aussie Review members a thank you note and a couple of cases of our best Pinot Noir, declare victory, and go home.

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