This is the fifth and final part in the Commerce Amendment (Promoting Competition and Other Matters) Bill (Bill) series
This article looks at what are actually several different proposed amendments to the Commerce Act (Act), but which each share a common stated purpose: supporting beneficial business collaboration. Amendments are proposed to streamline the existing collaborative activities regime, and to create new notification and class exemptions regimes for certain types of anticompetitive conduct.
Problem definition
Under the Act, persons wishing to engage in certain anticompetitive conduct that would give rise to public benefits (efficiencies) that outweigh the detriments of the loss of competition can apply to the Commerce Commission (Commission) for authorisation of that conduct. The conduct that can be authorised includes cartel conduct (ie price fixing, market sharing, output restrictions), resale price maintenance (RPM) and contracts, arrangements or understandings (agreements) that substantially lessen competition (such as collective bargaining agreements).
In the case of cartel conduct, parties may also seek clearance from the Commission if they consider that the ”collaborative activities” defence applies and the conduct is unlikely to substantially lessen competition. Alternatively, they are free to self-assess whether this exception applies.
The collaborative activities defence applies where two or more competitors are jointly carrying on an activity in trade (ie a collaborative activity) and the cartel provision(s) are ”reasonably necessary” for the purpose of that collaboration.
Since its introduction into the Act in 2017, there has only been one collaborative activities clearance application. That case concerned the Anytime Fitness gym franchisor and its franchisees seeking clearance to, inter alia, agree prices at their separate gyms. The Commission declined to grant clearance to on the basis that this price fixing was not reasonably necessary for the purpose of the franchise. Part of the reason for this was that the franchise network was viably operating without franchisees agreeing prices. This led some commentators to argue that the reasonably necessary test, as applied by the Commission, is too onerous.
The Government is concerned that the current state of affairs ”creates unnecessary uncertainty, cost, and delay for arrangements that are likely to be pro-competitive or deliver public benefits”. The Regulatory Impact Statement (RIS) cites three examples of beneficial collaboration that it says have been hindered by the current clearance and authorisation framework:
- the banking sector’s efforts to tackle scams, with banks expressing concern about uncertainty and compliance risks;
- the Accident Compensation Commission (ACC) has raised concerns that collaborative commissioning, funding and contracting with other health providers is constrained; and
- the cost and complexity of the authorisation meant that a group of 19 independent performers could not collectively negotiate to improve transparency and predictability in working arrangements.
Assessing the proposed amendments
The proposed amendments in the Bill fall into four main categories:
- amendments to the collaborative activities clearance regime;
- the introduction of a notification regime (initially limited to RPM and collective bargaining);
- a class exemption regime allowing the Commission to make secondary legislation exempting certain classes of conduct from the restrictive trade practices provisions in Part 2 of the Act, and the merger control provisions in Part 3; and
- an ability for the Commission to refund and waive application fees.
Collaborative activities regime
The Bill leaves intact the existing process for obtaining clearance for a collaborative activity (which, for ease of discussion, is refered to as Option A), but introduces a second, more streamlined, Option B. Option B is the same as Option A, save that:
- the Commission would not be required to consider whether the collaborative activity would substantially lessen competition;
- the clearance obtained would provide immunity from the operation of section 30 only (ie the cartel prohibition). This is a more limited scope than the pre-existing regime, which also provides immunity from the operation of the general prohibition on anticompetitive agreements in section 27.
The Bill also introduces the ability for the Commission (under both Option A and B) to grant clearance on such terms that would allow future persons to join the arrangements, and to impose conditions on clearance (and vary them in future).
The upshot of this is that applicants will now have the option of a more streamlined process for clearance of their collaborative activities, where they can choose to self-assess compliance with section 27 of the Act. Provision can also be made for additional parties to join a collaboration in future and benefit from an existing clearance, and the Commission will be able to impose conditions where appropriate. This should make the application and assessment process more straightforward in cases that do not raise issues under section 27. It would also allow the Commission to impose conditions to ensure competition is safeguarded in appropriate cases.
However, the amendments do not address concerns about the application of the reasonably necessary test arising from the Anytime Fitness case. As such, the key threshold test for obtaining clearance may still be seen as a barrier to applying for clearance (and, indeed, to self-assessing the application of the collaborative activities defence and proceeding without clearance).
New notification regime
The Bill would introduce a new regime whereby persons can notify the Commission of certain proposed anticompetitive conduct. Initially the regime would apply to RPM and collective bargaining for contracts where the expected value of the goods or services to be supplied in a 12 month period is less than $3 million. If the Commission does not object within a certain time period, the conduct would be permitted.
The process would work like this:
- a person gives notice to the Commission in accordance with a proscribed form;
- the Commission effectively has 45 days to assess the conduct against an ’objection test’ (see below for details); and
- after conducting its assessment the Commission may:
- issue a ’non-objection notice’;
- issue an ’objection notice’; or
- do nothing (in which case the conduct is deemed to be authorised for three years).
The Commission may issue an objection notice if it considers that the objection test is met. The Objection Test is that ”the conduct will not result, or will be unlikely to result, in such a benefit to the public that the conduct should be permitted”. It would be able to impose conditions when issuing a non-objection notice.
Authorisation would last for a maximum of five years for collective bargaining and ten years for RPM and would immunise parties from the application of section 30 (only) for collective bargaining, and the RPM provisions of the Act for RPM.
Putting this all together, the regime would represent a more streamlined (and faster) way for parties to obtain immunity for RPM and collective bargaining relating to small agreements compared with the existing authorisation regime. That said, the test for objection is a public benefits test, and so applications will need to include assessments of benefits and detriments (which, depending on the nature of the proposed conduct size of the potential benefits and detriments, may still require significant resources).
New class exemption regime
The Bill would introduce a new class exemption regime that would allow the Commission to exempt from the operation of Part 2 or 3 of the Act (relating to restrictive trade practices and merger control, respectively) ”any class of persons or any class of transactions” if it is satisfied that:
- the conduct would not, or would not be likely to, have the effect of substantially lessening competition; or
- the conduct would result, or would be likely to result, in net public benefits outweighing any detriments.
However, it would only be able to grant an exemption if it is satisfied that:
- granting the exemption is necessary or desirable in order to promote the purpose of the Act; and
- the exemption is no broader than reasonably necessary to address the matters that gave rise to the exemption.
In Australia, which has a similar regime, the Australian Competition and Consumer Commission (ACCC) has thus far created one class exemption for collective bargaining involving franchisees, fuel retailers and companies that each have less than $10 million turnover per annum. At this stage it is unclear what conduct the Commission is likely to exempt under Part 2 of the Act, but collective bargaining by small business is a possibility.
An interesting point to note is that the regime would allow the Commission to exempt conduct from Part 3 of the Act – the merger control provisions. This would presumably allow the Commission to create a de minimis exemption for small mergers, something that several in the competition law (and business) community have recently been calling for. This would be a welcome development.
Fee waivers and refunds
Finally, the Commission would be able to refund or waive certain application fees for (non-merger) clearances, authorisations and notifications (for mergers and anticompetitive conduct) if:
- payment of the fee would cause undue hardship; or
- the public benefits of the notified conduct significantly outweigh the detriments.
This is a welcome development, and should hopefully make it easier for small businesses, in particular, to access to the clearance, authorisation and notification regimes. That said, application fees often comprise only a small part of the overall costs of these processes and so it is unclear how much this will move the needle.
In all, the proposed amendments provide new and lower cost ways for businesses to obtain formal approval of certain conduct and as a package this is to be welcomed. However, several concerns remain unaddressed (eg the ’reasonably necessary’ test for collaborative activities) and notifications will still require engagement with public benefits considerations, which can be resource-intensive.
If you would like to discuss any aspect of what has been covered in this article, please get in touch.
