Thursday, 29 September 2022


Last weekend the 33rd annual Competition Law and Policy Institute of New Zealand (CLPINZ) workshop was held at Simpson Grierson's Auckland offices - many thanks to James Craig and the Simpson Grierson team for use of the impressive facilities. It was once again a hybrid event - effectively standing room only for the 80 or so attending in person, with others attending online - and it increasingly looks like the most effective and flexible way of putting on events like this. One of my mates reports that the digital version worked really well, so hat tip to Shannon Woodward and the team from Conference Innovators for organising everything and to their technical folk for making the linkups work.

CLPINZ attendees hit the coffee, Saturday morning

First up was the keynote speaker, Professor Fiona Scott Morton from the Yale University School of Management: she was a fine presenter, and you could see why she's won teaching awards. Her general theme as per the workshop programme was 'Misuse of market power enforcement', and her presentation (online, from Edinburgh) was titled 'Competition Policy Whiplash'. Her argument was that over the past three or four decades economists, influenced by the 'Chicago School' style of thinking, had retreated more and more from activist anti-trust enforcement and towards deregulation and letting markets rip, whereas the economy, particularly the 'new' economy of tech and platforms, was posing more and more potentially anti-competitive problems. Old school economic thinking, and legal evidentiary standards in the US around an unrealistically high burden of proof, were being danced around by corporate strategies such as 'buy or bury' (acquisition or elimination of nascent competitors, what some call 'killer acquisitions'). Economics, and law, she reckoned, need a rev up to be able to better analyse what's going on (economics) and to be more able to do something about it in a courtroom (law).

Changing the law to better nobble anti-competitive stuff is precisely why we've recently reformulated s36 of our Commerce Act. Ben Hamlin, the commentator on Fiona's paper, had a look at how we're set up to deal with the issues Fiona raised. On the plus side, our s36 looks a more flexible instrument than its US equivalent, partly because "likely effect" leaves room to catch anti-competitive effects that would fall short of the "more likely than not" test in an American court. And our High Court can (and typically does for these s36 cases) have a Lay Member, so there's a better chance that modern economics will get a look in (Ben told us something I didn't know, which was that both the Court of Appeal and the Supreme Court can appoint an economic adviser, which looks like a good option to have). On the down side, when we have tried to ping potentially anti-competitive stuff, it didn't work very well (albeit under the old s36 and before  modern case management), and the Commission is going to have to lift both its investigation and prosecution game if it's going to be effective. And while the 'new' economy gets a lot of focus both overseas and at home (we've got some big tech companies of our own), Ben noted that the decarbonisation challenge posed by climate change is going to pose stiff competition challenges elsewhere, too (eg if a renewables-based electricity generator's market power got a tailwind).

Onwards to 'Setting the bar for collaborative activity workouts', presented by Sarah Keene and commented on by Emma Ihaia of Link Economics. The 'workout' theme referred to the gym involved in the Commerce Commission's decline of the first authorisation of a 'cartel' provision in a collaborative activity (press release here, decision here). Bit of a mouthful, but what's going on is that the Commission can authorise what would otherwise be a no-no - in this case, a gym franchisor setting maximum and minimum membership fees for its individual franchised gyms - if the provision is "reasonably necessary" for the collaboration to work. Several people pointed out that a lot of the evidence in this decision was redacted, and from the outside we're not privy to what the Commission saw, and even without knowing the details, the fact that the gym managed for some years without the provision it wanted authorised rather undercut the argument that it was "reasonably necessary" for the operation to be a commercial goer. That said, it looks distinctly odd that franchises have been caught by the law at all (people, including Sarah in a past life, had argued they shouldn't have been) - and I feel the same way, to my mind they are interconnected parties - and it's equally odd that even the Commission didn't see any anti-competitive harm ("In our Statement of Issues we expressed the preliminary view that competition is unlikely to be substantially lessened by the Proposed Agreement"). But that was moot: falling at the "reasonably necessary" hurdle meant it couldn't be cleared, even if it did no competitive harm. 

Session 3 chaired by Hayden Green of Axiom Economics was 'Insights into the Commission', originally meant to be a tour d'horizon by outgoing ComCom chair Anna Rawlings but sadly disrupted by a bereavement in her family. In her stead ComCom's Antonia Horrocks (GM Competition) and Andrew Riseley (GM Legal Service), stepped up at short notice and did very well indeed across a wide variety of topics (y'all know who they are but if not profiles are here). Among the things I picked up on: the growth of the Commission (79 folks when the Commerce Act hit the statute books in 1986, 408 now), reflecting its expanded roles; it's setting up an outcomes-based framework to figure out its actual impact (or not), and is planning some look-back analysis of previous merger decisions (gets a tick in both those boxes from me); the value for money as a lighter-touch regulatory option of the $300K a year spent on the airports' information disclosure regime; how 'must do' things like the recent tsunami of mergers have sucked resources out of more discretionary stuff; and, something I'd been baffled about ('What if they threw a party ...', 'Sterny McSternface'), what was going on with authorising collaborative activity to help with the response to Covid. As it happens, quietly in the background ComCom was in fact allowing helpful initiatives through, but barring a rather oblique reference (on p18 of the latest Annual Report), you'd be hard pressed to know. The Commission could usefully give itself a more public pat on the back.

Session 4, chaired by Alicia Murray of DLA Piper, was on unfair terms in business to business (B2B)  contracts, which kicked in here in New Zealand this August for B2B contracts where the trading relationship between the parties is less than $250K a year. Australia's had a regime going for small business contracts ('small' defined differently, but never mind) since 2016, so Professor Jeannie Paterson of the University of Melbourne walked us through what's been happening there, with local  commentary by Jennifer Hambleton from MinterEllisonRuddWatts. The upshot from Australia is that while there is little case law (there have typically been settlements when the regulator has challenged terms), the likelihood that what is adjudged unfair in a B2B contract and what is unfair in a business to consumer contract may be different, and may reduce the likelihood that a term is unfair: Jeannie said for example that "Running a business is all about bargaining for a viable balance of risk and cost in the deal. Many businesspeople are savvy at this trade-off. They may not be able to influence the terms of a standard form contract, but they may negotiate price, which should reflect the risks assumed". That said, it wouldn't be safe to conclude that anything goes, and you can stick any old terms to anyone on a take it or leave it basis: "the takeaway lesson ... may be caution in the scope of the boilerplate provisions". Jennifer ran us through the technicalities of the NZ legislation, including pointing us to one of the limbs of the legal test for an "unfair" contract term, namely "The term is not reasonably necessary to protect the legitimate interests of the party advantaged", and noting that there is "significant uncertainty" about what that means. Given that (as we learned in a preceding session) "reasonably necessary" was also the big issue in collaborative activity authorisations, you'd wonder (as a non-lawyer, in any event) whether there couldn't have been a user-friendlier formulation in the law. In any event, the new legislation is one of those useful bits of consumer law where, by addressing imbalances of bargaining power, it helps grease the wheels of workably competitive markets.

Our dinner speaker was Neale Jones from government relations and communications firm Capital, who gave a very entertaining and insightful guide to effective political lobbying. I'd guess most of his audience have had a go somewhere along the way at influencing things in the competition and regulation space (I've weighed in on s36, market studies, ComCom's Covid-era powers, and ComCom's info sharing with other agencies) and we picked up some practical ways to do it better.

Saturday morning, and we started off with 'Market studies, looking back and looking forward'. It was to have been chaired by Will Taylor of NERA, but at the last moment he came down with the dreaded lurgy, and the ubiquitous Ben Hamlin stepped in to preside over Eric Crampton from The New Zealand Initiative and Lucy Cooper from Chapman Tripp. Two big points from Eric: if you're concerned that competition isn't working in a market, the best first question to ask is, what are the barriers to entry? Why aren't new entrants able to come into a market and eat the incumbents' supernormally tasty lunch? And secondly, when you do that, you're liable to discover that there are "impenetrable thickets" of overlapping blockages which are the real issue: he mentioned the cumulative effects, for example, of regulation (including occupational licensing), statutory protections, zoning and consenting in the planning process, and the Overseas Investment Act. Both Eric and Lucy wondered about the selection process: so far the topics chosen (while good ones) have all been government priorities, and there could well be traction from ComCom being given its head to look at where it thinks there may be issues. Lucy raised something I hadn't thought of: she said that ComCom's strength is in analysis and findings, and perhaps there's scope for the policy recommendation piece to be shared with, or done by, others, given that policy development is an art form of its own. I can see the point, and Lucy (who's been through the supermarkets and petrol bunfights) knows more about process than I do, but FWIW, what you might gain in policy development you might lose in urgency (think s36, and others), unless the policy developers' feet were held to the fire in the same way that ComCom is forced to move right along with its market studies.

Ben Hamlin warms up the audience for Eric and Lucy

And finally we got to an oddity of New Zealand's competition regime, ComCom's legislated inability to accept behavioural undertakings in merger proceedings. In the session, chaired by Glenn Shewan from Bell Gully, we heard from Linda Evans from Herbert Smith Freehills in Sydney (Australia allows behavioural undertakings, and Linda's been involved in some big ones), with commentary from Michael Tilley, Geelong Cats fanatic and mergers manager at ComCom. Another very good session, and I hope I don't do it an injustice by cutting straight to the chase, namely that an absolute prohibition doesn't make much sense and that occasionally - occasionally - behavioural undertakings will be a good way to go. Linda: "The experience, particularly in the US, but also from Australia and Europe, indicates that behavioural undertakings may be appropriate in certain circumstances. In particular, well designed behavioural undertakings can effectively resolve any competition concerns, while also maintaining the efficiency benefits of a transaction". Michael: "There is a case for change; Acceptable standalone conduct remedies are likely to be rare; Claimed efficiencies should be treated with caution; Consumer benefits should outweigh the costs; Commission would want ability to say “no”".  When we get the next update of the Commerce Act, this should be on the agenda.

If you'd like more detail on anything, the papers and slides are already up in the members' area of the CLPINZ website, and recordings of the sessions will also be available in the near future.

A long post, but then this was a pretty chunky and meaty workshop. I'd guess the length was, um, reasonably necessary?

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