Strengthening the section 46 misuse of market power provision

Section 46 misuse of market power provision

Geoffrey Taperell, Senior Adviser, KPMG Law, looks into the Government's proposed legislation clarifying corporate misuse of market power.

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Special Counsel, Tax

KPMG Australia

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On 1 December 2016, the Government introduced the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016. As an amendment to the Competition and Consumer Act 2010, the Bill aims to strengthen Australian competition law by more effectively deterring firms with substantial market power from engaging in anti-competitive conduct.

Under the current section 46, corporations with substantial market power are prohibited from ‘taking advantage’ of that power for the purpose of eliminating or substantially damaging a competitor, preventing entry into a market, or deterring or preventing a person from engaging in competitive conduct.

In March 2015, the Harper Committee raised in their Final Report three main issues with the present provision.

First, the Committee was of the opinion that the ‘take advantage’ limb creates uncertainty (see cases Rural Press; Cement Australia) and is deficient in distinguishing competitive from anti-competitive conduct. Second, that the provision wrongly immunises the conduct of substantial market power firms in circumstances where firms without market power can potentially engage in the conduct. Third, that the focus on individual competitors implicit within section 46 is inconsistent with the Act’s overriding policy objective which is to protect the competitive process as a whole.

The new section 46 prohibits corporations with substantial market power from engaging in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in any market. The amendments remove the ‘take advantage’ test, replace the ‘purpose’ test with a ‘purpose, effect or likely effect’ test and introduce mandatory factors.

The Bill seeks to create a commercially and legally robust provision that effectively differentiates between vigorous, albeit beneficial, competitive conduct and anti-competitive conduct that is without economic justification. It also aims to reduce uncertainty by clarifying that misuse of market power law is concerned with the protection of competition generally.

The lead up to the Bill, however, has been marked by controversy due to fears that it will chill competition. The Bill will be debated in Parliament early this year and, if enacted, time will reveal whether the effects test is indeed the better and more certain lens through which to determine whether a corporation has engaged in a misuse of market power.

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