|November 1, 2013|
Previously published on October 2013
No one finds the law in relation to monopolization or abuse of dominance in Australia and New Zealand (ANZ) to be very satisfactory. Global businesses often have to adapt their practices specifically for their ANZ operations especially in relation to product distribution.
Enforcement officials (the ACCC and NZCC) are frustrated too: although many private cases succeed, cases selected by them for public enforcement of the monopolization standard generally fail. Despite the policy intention that the law should protect the competitive process, the way it is drafted makes it easier for individual competitors to establish they, rather than the market as a whole, was harmed.
There are several important features of the ANZ law that do not work as well as international counterparts. Reform now can be expected due to a recent judgment against the ACCC in a predatory buy-side case, ACCC v Cement Australia, and the new Government’s so-called "Root and Branch Review" of competition law.
Background to the ACCC v Cement Australia case
Buy-side cases are unusual in the competition law world. This case concerned the purchase by a cement company of fly-ash from power stations. A certain amount of fly-ash can be used as a cheap 'extender' in the construction industry when mixed with cement. The allegation was that a cement company with market power was too generous to sellers when it purchased all the readily available sources of fly-ash, thus preventing a smaller competitor from establishing its business. When the judge's full reasoned decision is released, this will be one of the few precedents concerning how to 'invert' standard monopoly concepts (here, predatory under-pricing) into monopsony concepts (predatory over-pricing).
ANZ approach to misuse of market power cases
The first difference between the ANZ and other standards that tends to frustrate companies is that, in Europe and the U.S., the focus is on what are the effects of conduct engaged in by large firms. By contrast, the ANZ standard focuses on what was the purpose of the conduct. This puts the internal emails and business documents at the center of court cases where they are only indirectly relevant in other jurisdictions. Internal documents are at risk of creating exposure for large companies when transactions are being negotiated and when rights under pre-existing contracts are being exercised.
A difference that frustrates regulators is the requirement that the plaintiff prove not only that a company had market power and that it was used for an anticompetitive purpose but also that the alleged conduct really did constitute a “taking advantage” of market power. In other words, it is possible to mount a defense that a non-dominant company somewhere else in the world has engaged in similar conduct (for example that a non-dominant firm in the same industry has a distribution network with absolute territorial exclusivity). The implication that can be made by the defendant is that, even if it has market power and even if its internal documents show that the conduct was for an anticompetitive purpose, the conduct engaged in was not done so as a "taking advantage" of market power, but merely an initiative that a non-dominant company might do.
A difference that frustrates clients and embarrasses the Australian authority is that, in Australia predatory pricing cases, the plaintiff does not need to establish that the defendant has a substantial market degree of market power. Instead any company with a substantial share (15%+) is at risk of breaching the law if it prices below cost for an anticompetitive purpose.
The judge in ACCC v Cement Australia has yet to publish his reasoned decision, but he has released orders that already make it clear the ACCC probably failed to prove the 'taking advantage' or purpose elements of the prohibition. Meanwhile, the ACCC was successful on the lesser charge that contracts in question had the effect or likely effect of substantially lessening competition, highlighting the problem with the ANZ law. The misuse of market power prohibition is assessed according to a standard that is quite different from whether or not the conduct actually results in anticompetitive effects.
This case comes at a time when a new Federal Government has been elected promising a legislative review designed to strengthen the law’s ability to protect small business, and it has stated that the law concerning the misuse of market power will be a key topic for review. Under the Australia-New Zealand pact for Closer Economic Relations, any Australian competition law change triggers an obligation upon the New Zealand government to consider making the same change. Clients entering into long term contracts, or who are making long term decisions about how their products are distributed in ANZ, must both comply with the current law and anticipate the changes that may result from the reform that may be implemented arising from consideration by the legislative review committee of the decision in ACCC v Cement Australia.