Harper Review Draft Report - what you need to know

On 22 September 2014, the Harper Review Panel released its Draft Report of the "root and branch" review of Australia's competition laws and policy.

The report contains a number of key recommendations that may impact your business. These include:

• the introduction of an "effects" test in the misuse of market power provisions;
• changes to the prohibitions on cartel conduct including broadening the joint venture exception to allow for a wider range of collaborative activity;
• introduction of a new prohibition on concerted practices subject to a substantial lessening of competition test (SLC test); 
• important changes for intellectual property rights' holders such as the repeal of exceptions to licensing of intellectual property rights and the removal of parallel import restrictions;
• simplification of the prohibitions on vertical arrangements, including replacement of the per se prohibition on third line forcing with an SLC test;
• an enhanced and more flexible collective bargaining framework for small businesses;
• creation of a new process for merger clearances; and
• amendments to the national access regime consistent with those recommended by the Productivity Commission.

 Submissions on the Draft Report are due by 17 November 2014 and the Panel's final report is due to be released in March 2015.

 "Effects" test for misuse of market power

 

Will it lower the threshold?

The Panel considers that the primary prohibition in s 46 of the Competition and Consumer Act 2010 (CCA) should be "re-framed" 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. 

The Panel proposes that a defence be introduced so that the primary prohibition would not apply if the conduct in question:

    a) would be a rational business decision or strategy by a corporation without a substantial degree of power in the market; and

    b) the effect or likely effect of the conduct is to benefit the long-term interests of consumers.

While the ACCC has welcomed the proposal, it is not clear that the reformulated prohibition will make the ACCC's job any easier in respect of prosecuting s 46 cases. The limbs of the potential defence as presently worded appear narrower in respect of (a) and unclear in respect of (b). The advantage of the proposed new test is that it focuses on protecting competition (and not individual competitors) which is more consistent with the overriding policy objectives of the CCA and the other prohibitions.

Simplified cartel provisions likely to benefit businesses

The Panel recommends a number of changes to simplify the cartel provisions in the CCA. These are likely to be positive for most businesses. Two changes which are of particular note include:

• where the "competition condition" is relevant - the Panel recommends confining the cartel provisions to conduct involving firms that are actual or likely competitors (and not firms for whom competition is a mere possibility), where likely means on the balance of probabilities; and
• if the JV exemption is relevant - the Panel recommends a broader exemption for joint ventures and similar forms of business collaboration (whether in relation to the supply or acquisition of goods or services), recognising that this conduct is subject to the SLC test in s 45 of the CCA.

New 'concerted practices' prohibition to apply to all sectors

 

The Panel has recommended repeal of the current prohibitions against price signalling in the CCA, which are currently confined in their operation to the banking industry, to be replaced by a general prohibition on concerted practices which have the purpose or effect of substantially lessening competition.

The Draft Report states that a concerted practice is a regular practice undertaken by two or more firms and that it would include a regular disclosure or exchange of price information between two firms, whether or not it is possible to show that the firms had reached an understanding about the disclosure of exchange. The recommendation is designed to prohibit anti-competitive disclosures of information regardless of the sector of the economy in which they occur.

This is a material and significant amendment, which may have unintended consequences. It will be a real challenge in concentrated, interdependent industries to confidently deploy and implement compliance and risk minimisation strategies.

Benefiting from IP licencing exceptions in the CCA

 

The Draft Report contains several proposals that seek to shift the balance between protection of intellectual property (IP) rights and competition policy.

The Panel recommends removal the exemption for intellectual property right holders in s 51(3) of the CCA. Currently, s 51(3) provides a limited exception from most competition law prohibitions for certain types of transactions involving IP.

In the Panel's view, IP rights can potentially be used in a manner than harms competition. Accordingly, they consider that it is appropriate that the use of IP rights be subject to the CCA. This is especially so given the influence that Australia's IP rights can have on facilitating (or inhibiting) innovation, competition and trade.

The Draft Report also contains a proposal to remove the remaining restrictions on parallel imports unless it can be shown that:

• they are in the public interest; and
• the objectives of the restrictions can only be achieved by restricting competition.

In the Panel's view, parallel imports provide an alternative source of supply which promotes competition and can provide consumers with products at lower prices.

Finally, the Panel has recommended a separate overarching review of intellectual property arrangements to be undertaken by an independent body such as the Productivity Commission.  

Do the vertical restrictions in the CCA apply to your business?

If so, you may benefit from significant proposals to simplify and streamline the prohibitions in the CCA. These include:

• removal of the per se prohibition on third line forcing;
• overhauling the overly complex drafting of the exclusive dealing prohibitions so that two forms of broadly defined vertical conduct are prohibited where that conduct has the purpose or effect of substantially lessening competition;
• extending the notification process to include resale price maintenance (RPM), to provide a quicker and less expensive exemption process for business; and
• including an exemption for RPM conduct between related bodies corporate.

Small businesses seeking collective bargaining arrangement flexibility

The Panel has recommended that the CCA be amended to introduce greater flexibility into the notification process for collective bargaining by small business. This includes a recommendation for a single authorisation application for a single business transaction or arrangement and empowering the ACCC to grant block exemptions for certain types of business conduct that are unlikely to raise competition concerns. The panel has also noted that the collective bargaining notification process could better facilitate efficiency-enhancing collective boycott activity.

Does the new formal merger clearance process offer much benefit?

 

Other than noting that timely decisions, transparency and consultation are key aspects of the ACCC's informal merger clearance process, the Panel has not recommended any changes to this process since it operates outside any formal legal framework.

However, the Panel has proposed a more streamlined formal exemption process as follows:

• creation of a new formal merger clearance process that combines the formal merger clearance and merger authorisation process;
• provision for all merger decisions made by the ACCC to be reviewable by the Australian Competition Tribunal; and
• strict timelines that cannot be extended except with the consent of the merger parties.

Given the widespread use of the informal merger clearance process, it remains to be seen whether a new formal clearance process would garner much use - however, the availability of review by the Tribunal may be attractive feature for some merger arrangements requiring clearance. 

Endorsement of the Productivity Commission's recommended changes to the national access regime

The Panel has recommended adoption of the Productivity Commission's recommendation on criteria (a) and (f) and the alternate recommendation on criteria (b). 

Other recommendations

The Draft Report contains numerous other recommendations in areas of human services, road and marine transport, taxis, retail trading hours, pharmacy ownership and location. If you require more information on what the review will mean for you, please let us know. 

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).