Competition law may be one of the most important areas of law that you know nothing about. It might not be an area of law that affects people’s lives in a real and direct sense, like criminal law. And it may not be an area of law that most people deal with on an everyday basis, like property law. But competition law plays a huge role in Australia’s economy. This article will help you get to know this important member of the legal family.
Competition Law – Not Competitions Law
Before looking at the history of Australian competition law and some key provisions, let’s get a common point of confusion out of the way. Competition law is different to the law dealing with competitions and trade promotions run by businesses for marketing purposes. In broad terms, competition law sets out the rules governing the interaction between businesses in markets.
History of Australian Competition Law
The first attempts at Australian competition law can be dated back to the anti-dumping legislation of the early 1900s, which sought to prevent foreign monopolies from selling surplus produce in Australia at low prices. The foundation of Australia’s current competition legislation is found in the Trade Practices Act 1974, which remained in force until it was replaced by the Competition and Consumer Act 2010.
Many of the key provisions of Australia’s competition law are contained in Part IV of the Competition and Consumer Act, which deals with restrictive trade practices. Put simply, these are activities by businesses that have the effect of restricting trade and commerce.
Section 45 of the Competition and Consumer Act prohibits businesses from making or giving effect to contracts, arrangements or understandings that:
- Include an exclusionary provision; or
- Have the purpose, effect or likely effect of substantially lessening competition.
An exclusionary provision is a clause in a contract between two or more competitors that has the purpose of preventing, restricting or limiting the supply of goods or services to (or the acquisition of goods or services from) particular persons. Exclusionary provisions are illegal regardless of the effect they have on competition. However, a defence is available if the clause is for a joint venture and it does not have the purpose, effect or likely effect of substantially lessening competition. Substantial lessening of competition is a fundamental concept in Australian competition law.
Misuse of Market Power
Section 46 of the Competition and Consumer Act deals with misuse of market power. The elements of section 46 are:
- A business with a substantial degree of market power;
- Takes advantage of that power;
- For an anti-competitive purpose.
For misuse of market power, the threshold requirement is substantial market power. This is a factual question, which depends on detailed economic analysis and market definition. Market definition is another foundational concept in Australian competition law.
It has traditionally been difficult to establish misuse of market power. This is partly due to the difficulties in establishing substantial market power. However, another big hurdle in these cases is proving that the business engaged in conduct for a particular anti-competitive purpose.
To improve protections for small businesses, the Federal Government recently announced that it would extend Section 46 to conduct that has the effect or likely effect of substantially lessening competition, regardless of whether the conduct also has an anti-competitive purpose.
Cartel Conduct and Price-Fixing
Cartels occur when businesses collude with each other to increase prices, divide markets between competitors, rig bids or tenders and restrict the supply of goods and services.
Cartels have a dramatic effect on competition and consumer welfare, as well as economic growth. As a consequence, cartel conduct has both civil and criminal consequences under the Competition and Consumer Act and is a consistent priority in the ACCC’s compliance and enforcement policy.
Section 47 of the Competition and Consumer Act prohibits various forms of exclusive dealing. In general terms, exclusive dealing occurs when one business imposes restrictions on the trading activities of another business.
Most forms of exclusive dealing only raise concerns if they result in a substantial lessening of competition. However, “third line forcing” is prohibited regardless of its effect on competition. Third line forcing occurs when a business supplies goods or services to a person on the condition that the person also acquires goods or services from a third party.
A business engaging in exclusive dealing conduct may obtain protection from legal action by lodging an exclusive dealing notification with the ACCC.
Resale Price Maintenance
Section 48 of the Competition and Consumer Act makes it illegal for businesses to impose minimum prices for reselling goods or services. However, it is okay to have recommended retail prices – and, in most cases, the legislation does not prevent businesses from specifying maximum resale prices.
Section 50 of the Competition and Consumer Act prohibits mergers that have the effect or likely effect of substantially lessening competition. While the other restrictive trade practices considered above relate to anti-competitive conduct, merger law aims to regulate market structures.
In Australia, there is no mandatory requirement to notify the ACCC of a proposed merger. Nonetheless, there is an informal merger review process, through which the ACCC indicates whether it intends to oppose. In most cases, the ACCC decides not to oppose the merger. In some cases, the merger parties will provide court-enforceable undertakings dealing with concerns raised by the ACCC. Merger parties can also seek formal clearance from the ACCC or authorisation from the Australian Competition Tribunal. The ACCC’s approach to mergers is set out in its Merger Guidelines.
In April 2016, the ACCC announced that it was investigating the merger of online meal ordering services Menulog and Eat Now, which had occurred over a year earlier in January 2015. At the time of the transaction, the parties had not filed the merger with the ACCC for informal clearance. If the ACCC investigation indicates that the merger contravened section 50, the ACCC may seek remedies such as divestiture orders. These orders would require the merged entity to sell part of its business to satisfy competition concerns.
Other Aspects of Competition Law
Other important elements of Australia’s competition law framework include:
- Access to essential services (Part IIIA);
- Industry codes (Part IVB) – including a code of conduct for the franchise industry;
- Special regulatory regimes for the telecommunications industry (Parts XIB and XIC); and
- The Australian Consumer Law (contained in Schedule 2).
Stay tuned for more articles taking a closer look at different aspects of Australian competition law, as well as updates about significant competition law developments. In the meantime, if you have any questions, get in touch with our competition and consumer lawyers on 1300 544 755.