Competition and Consumer Law UpdateEvery cloud has a silver lining…

Dr Martyn TaylorPartnerMarch 2016

Overview

• Developments at the ACCC

• Status of the Harper Competition Reforms

• Substantive competition litigation under Part IV

• Developments under the Australian Consumer Law

• Other developments to note… and expect !

Whether the ACCC wins or loses… we get greater legal clarity & certainty

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Developments at the Australian Competition and Consumer Commission

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How the ACCC works in practice…

• The ACCC comprises an independent statutory Commission of eight Members and four Associate Members.

• The Commission is supported by around 700 staff structured into a number of Divisions and Groups.

• Possible breaches of competition law come to the ACCC’s attention through complaints and information from members of the public, the media, staff and other agencies.

• The staff of the ACCC are responsible for investigating anti-competitive conduct and making recommendations to the Commission via a ‘staff paper’.

• ACCC decisions are made through formal Commission meetings. Only the Commission may decide to commence legal proceedings.

• The relevant sub-committee of the Commission considers the staff paper and makes decisions, escalating to the full Commission if necessary for matters of high importance or complexity.

Enforcement

Committee

Enforcement

& Compliance

Group

Full

Commission

Commission

Staff

Staffing changes at the ACCC

• Budgetary pressures have impacted the ACCC

– Pressures on ACCC’s $175m budget have lead to reductions in staff

– Restructuring of the organisation and streamlining of various teams

• Rod Sims is in the final year of his current 5 year tenure

– ACCC has taken a tough and strategic approach to enforcement. Prepared to litigate more frequently, even when success is not assured

– Emphasis on high quality and principled decision-making, but also a focus on ensuring that decisions are pragmatic and more commercially nuanced (a legacy of the Metcash decision)

• Appointment of ACCC’s first chief economist in late 2015

– Sound economics will continue to underpin ACCC decisions; promoting transparency and predictability

• Appointment of new ‘Agricultural Commissioner’ in 2016

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Chairman Rod Sims

Deputy Chair Delia Rickard

Deputy Chair Michael Schaper

CommissionerChristina Cifuentes

Commissioner Sarah Court

Commissioner Roger Featherston

Commissioner Jill Walker

Commissioner Mick Keogh

and Four Associate Members

Streamlined ACCC structure (as at Dec 2015)

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ACCC’s enforcement priorities for 2016-17

Enduring priorities

• Cartel conduct

• Misuse of market power

• Anti-competitive agreements and

practices

• Product safety issues

• Consumer issues affecting indigenous

consumers

Strategic priorities

• Agricultural sector

• Health and medical sector

• Government procurement

• Small business

• Consumer products

• Vulnerable consumers

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Each year, the ACCC prioritises its enforcement activity within its budgetary constraint based on those sectors and behaviours it considers are most deserving of regulatory attention.

Status of the Harper Competition Reforms

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What was the Harper Review ?

• First comprehensive competition review in 20 years

– Policy concern regarding declining Australian productivity

– Hilmer Reforms in 2006 delivered strongest growth rates in OECD

– Previous reviews had limited terms of reference (eg Dawson Review 2003)

– Extensive consultation occurred under very broad Terms of Reference

• Ambitious 12 month timeline

– Liberal party 2013 election campaign pledged ‘root and branch’ review

– Sweeping Terms of Reference released in March 2014, followed by appointment of panel members

– Issues paper released April 2014, leading to around 350 submissions

– Draft report released September 2014

– Final report released March 2015

– Government response released November 2015

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Chairman Ian Harper

Panel memberPeter Anderson

Panel memberSu McCluskey

Panel member Michael O’Bryan

Reforms to competition policy

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Competition principlesNew overarching competition principles will be adopted by the Australian commonwealth, state and territory governments within the existing National Competition Policy (NCP) under COAG.

Now

Role of governmentThe new NCP will include updated competitive neutrality principles, including a requirement for each COAG government to have an independent complaint body.

Soon

Regulatory reviews and restrictions

Federal competition payments may encourage states and territories to reduce regulation in priority areas.

Reforms will target excessive planning regulation, retail trading hour restrictions, and pharmacy ownership and location rules.

Later

Parallel importingThe government will remove restrictions on the parallel importing of books.

Announced reforms will allow greater importing of used motor vehicles from 2018.Now

Human services

The Productivity Commission will consider competition principles in the delivery of health, education and community services.

Reforms will promote choice and innovation.

Later

Transport servicesLong-term reforms to road transport will promote more cost reflective road pricing.

Reforms to shipping have been deferred for further consideration.Later

Utility services

Federal competition payments may encourage states and territories to implement the National Water Initiative.

COAG will continue to finalise the Energy Market Reform Agenda.

Soon

Intellectual property

The Productivity Commission will finalise its review of intellectual property laws by August 2016.

Subsequent reform will complement the government’s innovation agenda.

Soon

Reforms to competition laws

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LegislationAn exposure Bill is being drafted to simplify various provisions of the Competition and Consumer Act 2010 (Cth).

Now

Cartel conductSimplification of the cartel and exclusive dealing provisions will occur, including repeal of the exclusionary provision restrictions.

Soon

Vertical conductThird line forcing will have a competition test.

Resale price maintenance will be notifiable. Soon

Price signalling The price-signalling provisions will be repealed. Soon

Unilateral conduct The government has announced it intends to make a significant reform to section 46, but the level of controversy suggests that this issue will be the most fiercely contested.

Later

National access regimeThe government will implement the Productivity Commission report on the National Access Regime of February 2014.

Now

MergersThe government is preparing an exposure draft Bill to address concerns with the formal merger review and authorisation processes.

Now

Authorised conductThe authorisation, notification and collective bargaining procedures will be streamlined, including a new block exemption power.

Soon

Private rightsPrivate litigants will be able to rely on admissions of fact in other proceedings, thereby assisting class action proceedings.

Soon

Reforms to competition institutions

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National competition policy body

The National Competition Council may be replaced by a new Australian Council for Competition Policy to oversee policy reform.

Soon

Access and pricing regulator

COAG may consider the transfer of certain ACCC functions into a single national ‘Access and Pricing Regulator’.

Later

ACCC procedures The ACCC will follow a media code of conduct.

The ACCC will also improve its communications with small businesses. Now

Controversy over misuse of market power reforms

What happened?

• Harper Review recommended major reforms to section 46 – see below

• Minister Bruce Billson took a proposal to Cabinet in August 2015 and was blocked by Tony Abbott, following various lobbying

• The Government’s response in November 2015 recommended further consultation by Commonwealth Treasury

• Treasury undertook further public consultation over the period December 2015 to February 2016, receiving 86 submissions

• Government announced on March 16 that it will adopt the Harper Review proposal.

What is the key concern?

• Historically, consideration was repeatedly given to including an ‘effects test’ in s46, but reviews recommended against this

• Small business was concerned that section 46 does not provide sufficient protection and again repeated this submission

• ACCC was concerned that section 46 is difficult to effectively enforce, so sought to reform the concept of ‘taking advantage’

• Harper Review proposed substantial reforms, largely adopting ACCC’s solution

• Business Council considered ACCC’s reforms would create significant uncertainty and impose material compliance costs

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Harper Review: A corporation that has a substantial degree of power in a market must not engage 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. [NB. Main difficulty with this is legitimate fierce competition]

What happens next ?

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• Implementation will be affected by the political priorities of the Government in an election year

• The policy debate around section 46 has become particularly politicised, but the Government announced on March 16 that it will adopt the full Harper Review proposal.

• Draft exposure Bill is currently being drafted and should be released for consultation mid year.

• Seems unlikely that a Bill will be finalised and enacted before the federal election later this year (particularly if there is a double dissolution election in the middle of the year, as has been suggested).

• What happens will turn on the result of the election, although some changes may have bipartisan support.

Substantive competition litigation under Part IV

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Misuse of market power / exclusive dealing

ACCC v Visa [2015] FCA 1020

• Pleaded as a misuse of market power and exclusive dealing. Visa admitted exclusive dealing and paid a penalty of AUD 18 million plus AUD 2 million costs.

• Visa Inc supplied to financial institutions on the condition that they did not acquire dynamic currency conversion services for Visa transactions from Visa competitors.

• This conditionality is prohibited under section 47(2) where it has the effect of substantially lessening competition (SLC). Visa admitted that it did SLC.

• The ACCC’s allegation under s46 was that Visa had taken advantage of substantial market power by blocking certain transactions by Visa cardholders with the purpose of harming competitors. This allegation was dropped by the ACCC in the settlement with Visa.

ACCC v Pfizer [2015] FCA 113 on appeal

• Pleaded as a misuse of market power and exclusive dealing. The ACCC lost in the Federal Court (FC) and appealed to the Full Federal Court. Appeal was heard in Nov 2015 with judgment reserved.

• Pfizer provided a rebate scheme for its existing drug ‘Lipitor’ to incentivise pharmacies to continue to acquire from Pfizer once Pfizer’s patent expired. Pfizer also engaged in direct supply and adopted a bundling strategy.

• The FC held that Pfizer did not have an anti-competitive purpose (under s46), or a purpose of SLC (under s47), but rather had a purpose of promoting its own products for its own corporate survival.

• While documentary evidence suggested blocking, the FC was persuaded by alternative explanations in oral evidence.

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Cartel conduct – ongoing civil prosecutions

ACCC v Cascade Coal (Listed: 4 April)

• ACCC is alleging bid rigging conduct involving mining exploration licences in NSW. ACCC has commenced action against 11 respondents, including Paul and Moses Obeid.

• ACCC alleges that Cascade entered into a contract, arrangement or understanding with other entities that they would withdraw from the tender process. In return, Cascade would acquire certain land and grant an interest in a mining venture to certain third parties.

• The ACCC investigation followed a high profile report by the NSW Independent Commission Against Corruption (ICAC).

• Much of the conduct occurred before the criminal prohibition against cartel conduct came into force in 2009, hence the ACCC is favouring a civil prosecution.

ACCC v Colgate Palmolive (Listed: 7 June)

• ACCC is alleging Colgate-Palmolive, Unilever Australia, and PZ Cussons Australia entered into arrangements to stop supplying standard concentrate laundry detergents and to only supply ultra concentrate from first quarter 2009.

• ACCC alleges that the groups agreed to sell ultra concentrates for the same price per wash as the equivalent standard concentrates and not to pass on cost savings to consumers.

• ACCC alleges that the arrangements covered brands including Cold Power, Radiant and Omo and had a significant effect on competition in an industry valued at almost $500m per annum.

• ACCC alleges Woolworths and Paul Ansell (an ex-Colgate sales director) were knowingly concerned.

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Cartel conduct – interesting outcomes

ACCC v Aust. Egg Corp. [2016] FCA 69

• Pleaded as attempt to induce a contravention of the cartel provisions. ACCC lost in the Federal Court (SA) and has appealed to the Full Federal Court.

• AECL alleged that AECL, Farm Price and Twelve Oaks Poultry had attempted to induce AECL egg producers to take action to address and correct an oversupply of eggs.

• The Federal Court held that the ACCC had not established that the action was intended to be pursuant to an agreement or understanding involving mutual or reciprocal obligations by competing producers (i.e., insufficient ‘mutuality’).

• The judgement appears to be specific to the evidence presented in court, but raises an interesting issue on the level of mutuality required for attempts.

ACCC v Informed Sources [settled 2015]

• Pleaded as an agreement with the effect or likely effect of substantially lessening competition in contravention of s45.

• ACCC successively discontinued proceedings against various parties after receiving court enforceable undertakings

• ACCC alleged that fuel retailers used the Informed Sources to communicate retail petrol pricing. ACCC alleged that the near real time manner of communication was likely to decrease competitive rivalry.

• In settlement, Informed Sources agreed to make pricing information available to consumers at the same time that retailers receive it (eg mobile ‘apps’ could pick up this information to inform consumers).

• Interesting issues are raised regarding asymmetric market transparency.

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Treatment of vertical resupply/agency arrangements

ACCC v ANZ Ltd [2015] FCAFC 103

• Pleaded as price fixing under the historic s45A. The Federal Court dismissed the claim. The ACCC appealed. The Full Federal Court dismissed the appeal.

• ACCC alleged that ANZ had required Mortgage Refunds to limit the amount of refund it would provide to its customers when arranging home loans for ANZ.

• ACCC alleged this was price fixing as ANZ and MR were competitors in the market for loan arrangement services.

• FC and FFC held that ANZ was supplying loans and not loan arrangement services, so ANZ and MR were not in competition

• The case raises the key issue whether a supplier and its resupplier (or agent) can be in competition with each other. The case suggests this turns on the proper characterisation of the resupply.

ACCC v Flight Centre on appeal to High Ct

• Pleaded as price fixing under the historic s45A. The Federal Court upheld the claim. Flight Centre appealed. The Full Federal Court upheld the appeal.

• ACCC alleged, in effect, that Flight Centre attempted to induce three airlines to enter into arrangements not to sell airfares at prices lower than Flight Centre

• ACCC alleged this was price fixing as Flight Centre and the airlines competed in distribution and booking services.

• FC agreed with ACCC. FFC disagreed, finding no separate market for the supply of distribution and booking services.

• The case raised the same issue as the ANZ case, but was decided differently. Whether agents compete with principals turns on the proper characterisation of the services supplied, so turns on the facts.

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Developments under the Australian Consumer Law

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The Australian Consumer Law (ACL)

• Commenced in January 2011 as a co-operative reform between the Commonwealth and the States and Territories.

• The ACL is administrated and jointly enforced by the ACCC and the various State and Territory consumer protection agencies.

• Key elements of the ACL include:

• protections against misleading or deceptive conduct and false or misleading representations, as well as other unfair practices such as bait advertising;

• protections against unconscionable conduct as well as a national unfair contract terms law covering standard form consumer and small business contracts;

• a national law guaranteeing consumer rights when buying goods and services, including consumer guarantees that products will meet certain standards;

• a national product safety law and enforcement system;

• a national law for unsolicited consumer agreements covering door-to-door sales and telephone sales;

• simple national rules for lay-by agreements; and

• penalties, enforcement powers and consumer redress options.

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Recent litigation under the ACL

Unconscionable conduct

ACCC v Woolworths (Federal Court)

• ACCC alleges that in December 2014, Woolworths developed a strategy, approved by senior management, to urgently reduce Woolworths’ expected significant half year gross profit shortfall,

• ACCC alleges Woolworths sought to obtain payments from a class of 821 suppliers to its supermarket business.

• ACCC alleges that these requests were made in circumstances where Woolworths was in a substantially stronger bargaining position, did not have a pre-existing contractual entitlement to seek the payments, and either new or was indifferent to whether it had a legitimate basis for the requests.

• ACCC is seeing injunctions, refunds, pecuniary penalties, declaration, costs.

Misleading representations

ACCC v Reckitt Benckiser (Federal Court)

• ACCC alleged that Reckitt Benckiser (RB) made misleading representations on the packaging of each Nurofen Specific Pain product and on its website that each product was formulated to treat a particular type of pain and solely or specifically treated that type of pain.

• RB admitted that it had engaged in the contravening conduct and consents to orders made by the Court.

• The Court ordered RB to remove the Nurofen Specific Pain products from retail shelves within 3 months. The Court also ordered RB to publish website and newspaper corrective advertising and to implement a compliance program.

• ACCC agreed to an interim packaging arrangement with disclosures thereafter.

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Extension of unfair contract terms to small business

• From November 2016, amendments to the ACL will protect small business from unfair terms in standard form contracts.

• Standard form contracts are contracts that are offered on a non-negotiated ‘take it or leave it’ basis.

• The law will apply to such contracts enter into or renewed after 12 November 2015 where at least one of the parties to the contract is a small business (employs less than 20 people) and the upfront price is less than $300.000 (or $1 million if the contract exceeds12 months).

• Unfair terms include, for example:

• terms that enable one party (but not another) to avoid or limit their contractual obligations

• terms that enable one party (but not another) to terminate the contract

• terms that penalise one party (but not another) for breaching or terminating

• terms that enable one party (but not another) to vary the terms of the contract.

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Review of the ACL, including issues with e-Commerce

• In June 2015, Terms of Reference (TOR) were agreed for an implementation review of the ACL.

• Consumer Affairs Australia New Zealand (CAANZ) is tasked to conduct the review with a final report due in March 2017. CAANZ should publish an issues paper within the next month.

• CAANZ must assess the effectiveness of the ACL provisions and the extent to which the national consumer framework has met COAG’s policy objectives.

• The ACCC supports the ACL. The most likely outcome of the review will be the further strengthening of the ACL in certain key areas.

• The TOR specifically requires CAANZ to assess the flexibility of the ACL to respond to new and emerging issues. Issues with consumer protection on the Internet are likely to be considered, noting the ACCC has been focussed on this issue.

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Other developments to note… and expect

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The first criminal cartel prosecution in Australia?

• Rod Sims publicly commented in February: “We have around

20 cartel investigations under way at any one time and we

expect one or two criminal prosecutions this year”.

• Criminalisation of cartel conduct occurred in July 2009

– Historic ACCC policy that every cartel is criminal until decided otherwise

– Various reasons why no criminal enforcement has yet occurred, including the complexity of the legislative provisions and timing of the relevant conduct

• ACCC structure includes a ‘Serious Cartels Group’

– Greater use of search warrants and ‘dawn raid’ powers

– Desire to have a ratio of leniency to prosecutions for deterrent reasons

• Simplification of the cartel provisions is underway

– Harper Competition Review recommendations accepted by Government

– Draft exposure Bill is being prepared for release later this year

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The greater use of merger authorisations?

Current merger procedures Proposed new merger procedures

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Formal clearance

Informal clearance

Formal authorisation

Applicant Applicant Applicant

ACCC outside

legislation

ACCC pursuant to legislation

Tribunal pursuant to legislation

Letter of Comfort

Statutory Immunity

Statutory Immunity

Appeal

Informal clearance

Formal authorisation

Applicant Applicant

ACCC outside

legislation

ACCC pursuant to legislation

Tribunal pursuant to legislation

Letter of Comfort

Statutory Immunity

Appeal

• The greater practicality of merger authorisations may create merger opportunities in more concentrated sectors of the economy that can demonstrate a high public benefit component.

New powers to regulate credit card surcharges

• In February 2016, a new legislative and regulatory framework was established to ban card ‘surcharge payments’ that are ‘excessive’. The ACCC is the enforcement agency.

• Excessive surcharging by merchants involving an additional cost passed to the consumer that is above the merchant’s cost of acceptance of the payment method – may be banned.

• The prohibition will only apply in respect of surcharges that exceed a level for surcharging permitted under either a Reserve Bank standard or else set out in regulations.

• The ACCC has been given powers to compel the production of information by issuing a ‘surcharge information notice’, issue infringement notices, seek pecuniary penalties and otherwise seek remedial orders from the court.

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Dr Martyn TaylorPartner Norton Rose Fulbright Australia+61 2 9330 8056martyn.taylor@nortonrosefulbright.com

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