Harper's booster shot for competition

Beyond its big-ticket misuse of market power recommendations, the committee outlines a number of red tape cuts that will genuinely help business -- and raises one sleeper issue.

The draft report of the Harper committee’s Australian Competition Policy review is causing a stir. But while significant attention will be paid to the recommendation regarding misuse of market power, much of the committee’s best work focuses on less well-known provisions of the Competition and Consumer Act.

The big ticket item is, of course, the adoption of the ACCC’s recommendation that section 46 of the CCA -- which prohibits misuse of market power -- effectively be re-written. The proposed amendments -- being a mish-mash of an “effects” test combined with a complicated defence -- could well have the effect of chilling competition to the detriment of us all.  As the report itself demonstrates, however, this recommendation is such an extreme departure from previous reviews that one can hope it will die a quick death.

But market power aside, there is plenty in the Harper committee’s draft report that deserves attention and warm applause. The report demonstrates a clear drive to reduce complexity, improve “accessibility” and to ensure a more effective and integrated competition law regime.

Reducing red tape

First, the committee calls for several of our “per se” laws to be adjusted in one way or another. The Australian competition regime has per se laws (where particular conduct is prohibited regardless of its consequences) and laws subject to a competition or effects test (where conduct is only illegal if it adversely affects competition).  

The best known of our per se laws are the cartel provisions. In relation to these laws, the committee has said what everyone else has been thinking for a long time: they are way too complicated and the joint venture defence doesn’t work. 

The draft report also recommends the removal of the price signalling laws, generally seen as a political panacea to public disgruntlement with the banking sector. In its place, the committee suggests a vague prohibition designed to address “anti-competitive price disclosure”. Absent further details, it is unclear whether this approach would be an improvement, although at least it would be of general application and not confined to a specific sector of the economy.

But the per se laws are much broader than the cartel provisions and navigating such laws is a genuine burden for business, particularly smaller businesses with limited legal budgets. Common conduct is often prohibited per se, but businesses can get around the law via a complicated array of defences, exceptions and clever structuring.  This creates an enormous red tape burden, and renders certain legitimate conduct beyond the scope of many businesses.

So it is notable that the committee has recommended that third-line forcing be subject to an effects test and that notification be available for resale price maintenance. 

Third-line forcing is common conduct where one party provides incentives for its customers to deal with a third party. Such conduct is generally “legalised” by lodging a notification with the ACCC (or via structuring) but even where there’s no notification, the ACCC tends not to enforce the law. The recommendation to remove its per se status has been made many times previously, but tends to get caught up in politics. Hopefully, this time the recommend change will get through.

Similar issues occur in relation to resale price maintenance, where a manufacturer instructs retailers about the price at which they can sell. Again, this law can be avoided if one tries hard enough. Here, the committee was less convinced that its per se status should be removed but it did suggest that notification be available. This would allow a wide-spread and generally pro-competitive practice to occur relatively easily. 

The committee has also sought to improve the effectiveness of collective bargaining, allowing groups -- such as groups of farmers, for example -- to negotiate jointly. The changes suggested, while small, will go a long way to improving the regime.

Improvement to merger processes (but no real changes to the law)

The committee’s assessment of Australia’s current merger law is largely procedural in nature.  Considering that “no case has been made” for changes to address creeping acquisitions, it instead suggests that merger authorisations and the formal clearance process be combined, with the first instance decision resting with the ACCC. Again, this development has a distinct upside, as the cumbersome nature of the Competition Tribunal in dealing with public takeovers has recently demonstrated.

Simplifying the law

Perhaps with the cartel provisions front of mind, the committee also calls for an expert legal panel to undertake a process of simplifying the competition laws. As currently drafted, Australia’s regime is extremely complex so one can only hope that this recommendation lasts the distance and makes an impression on the government.

IP issues

One sleeper issue -- flagged briefly in the terms of reference and again in the issues paper – is that of intellectual property. The committee has recommended that section 51(3) -- which provides an exemption from the competition laws for certain types of IP arrangements -- should be removed. As not everyone in the IP space was paying attention to the Harper review, this recommendation could take some by surprise.

What issues remain outstanding?

While many of the committee’s recommendations appear minor, they will actually go a long way to creating a far more effective competition regime. That said, the Harper committee has not really engaged in key issues concerning the application of the law, rather the focus has been its wording. While paying lip service to the need for some form of alternative dispute resolution, particularly for small business, it does not address the sheer inaccessibility of the legal process. This issue clearly extends well beyond competition law -- but for so long as the court process remains inflexible, expensive and time-consuming, businesses will work out other ways to solve their competition law problems.

Dr Alexandra Merrett is a private competition lawyer and co-publisher of The State of Competition

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