As foreshadowed since a discussion paper was released in January 2019, the Government yesterday introduced the Commerce Amendment Bill in Parliament. This Bill, when implemented, will make a number of significant changes to New Zealand's competition law framework.
Most significantly, the Bill proposes an overhaul of the taking advantage of market power prohibition. The current "purpose-based" prohibition prohibits firms from taking advantage of a substantial degree of market power for an anticompetitive purpose (to deter new entry, harm competitors, etc). The benefit of this current test is that it provides an avenue for large businesses to self-assess their compliance, by asking themselves if they would engage in the same conduct if they did not have a substantial degree of market power. The proposed amendment expands the scope of the prohibition to prohibit any conduct by a firm with market power that has the purpose, effect, or likely effect of substantially lessen competition in a market (therefore, becoming a combined purpose or effect-based test).
We remain of the view that this proposed reform is a backward step, including because:
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It will be more difficult for large businesses to self-assess the legality of their own conduct, as they will be exposed to the unforeseen and unforeseeable consequences of their actions.
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It does not provide sufficient protections for large businesses who are acting responsibly. For example, market power prohibitions are often applied where a large business refuses to supply an essential input to a downstream competitor. Under the current law, such a refusal is lawful in circumstances where any commercial operator acting rationally would also refuse supply. This allows refusals where the customer is a bad debtor or credit risk, or where the large business is legitimately using all of the input internally to meet its own downstream demand. Under the new law, if the effect of the refusal is that the downstream competitor cannot compete, and they are a material competitor, the refusal could be illegal. The Bill should include a legitimate business justification defence to capture such scenarios, rather than leaving this to the Commerce Commission's discretion not to take such cases.
Other changes included in the Bill include:
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A repeal of the current IP exception in the Commerce Act, which combined with the new market power prohibition, would mean that large businesses will not be able to enforce their IP protections if doing so would have the likely effect of substantially lessening competition in a market. Given that businesses that hold IP will commonly be vulnerable to the allegation that they have market power, the repeal of the exception will introduce additional uncertainty into the enforcement of those rights – in particular, the common presumption that a business ought to be able to exclusively benefit from and enforce its own IP. The implications of this proposal, including on the incentives of businesses to invest in developing IP, will therefore need to be carefully considered through the Select Committee process.
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Expanding the cartel prohibition to capture cartel provisions in land covenants.
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Increasing the maximum pecuniary penalties for business acquisitions / mergers that breach the Commerce Act from $5 million for a body corporate to be the higher of $10 million, three times the commercial gain from the contravention or (if that cannot be ascertained) 10% of the business' group turnover. This is so that such penalties are the same as for a breach of the trade practices parts of the Commerce Act (i.e. market power and civil anti-competitive arrangements prohibitions).
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Increasing the maximum number of Commerce Commissioners from six to eight.
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Providing that the Commerce Commission may share information that it holds (that has been provided to the Commission by businesses subject to a compulsory or voluntary document request, etc) with other New Zealand regulators and Government agencies, subject to appropriate confidentiality obligations.
For further commentary on these proposed changes, see our June 2020 alert here.
The commencement for the key sections of the Bill is only one year after the Royal Assent. If you would like to discuss how to prepare your business in advance, or you would like assistance in preparing a submission to the Select Committee on the Bill, please get in touch with one of our experts below.