Friday 25th January 2019
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The government is considering adapting Australian competition law to improve local legislation barring anti-competitive conduct.
Officials have proposed amending section 36 of the Commerce Act – which bars firms with substantial market power from acting anti-competitively – because interpretation by the courts has made it too costly and complex to be effective.
They favour adapting law that Australia adopted in 2017, which puts more focus on activities that lessen competition, or are likely to lessen competition, rather than how much market power a firm has and whether it is acting deliberately to shut down competition.
They observe that since Australia’s change, New Zealand is now the only country in the world that still requires a strict causal connection between a firm’s market power and the conduct in question.
“New Zealand has a high proportion of markets that are dominated by powerful firms, so it’s important we have effective laws that prevent them from misusing their power,” Commerce and Consumer Affairs Minister Kris Faafoi says.
“As currently drafted, section 36 has tilted the playing field in favour of powerful firms and distorted competition,” he said in announcing a two-month consultation on the proposed changes.
“The law is difficult to enforce, and is not currently capturing a wide enough range of anti-competitive conduct.”
The issue is not a new one. The Commerce Commission has long complained of the difficulty in enforcing the law, introduced in 1986.
In 2010, then-Attorney-General Chris Finlayson tried to get the courts to change their approach during a case involving Telecom.
The Productivity Commission recommended change in 2014 and, the following year, the Ministry of Business, Innovation and Employment canvassed views for change in an issues paper.
The ministry says the main problem is the interpretation of the act by the Privy Council and the Supreme Court. That requires courts considering such cases to test potentially anti-competitive behaviour against the way a firm may act in a hypothetical market in which they didn’t have market power.
“There are whole categories of conduct that are harmless if a firm has no market power, but harmful if the firm has market power. This means that the current test in section 36 produces the wrong answer in these types of cases and fails to condemn all anti-competitive conduct,” the ministry says in the 73-page discussion paper it issued today.
Constructing such hypotheticals is also difficult and can require assumptions that are sometimes “quite unrealistic.”
“It is impossible to know beforehand which assumptions a court will choose in constructing the hypothetical market. This leads to costly, complex enforcement that reduces the incentive for businesses to comply with the law.”
The ministry is also recommending changes to the intellectual property provisions of the Commerce Act, and restrictions on the anti-competitive use of covenants.
It estimates the cost of the changes at about $2.7 million but says there should be cost savings for the Commerce Commission from simpler enforcement.
New entrants should also find it easier to enter markets and develop new businesses and the broader economy may benefit from improved competition, the ministry says.
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