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Streamlining the Competition and Consumer Act: Why and How

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Streamlining the Competition and Consumer Act: Why and How STREAMLINING THE COMPETITION AND CONSUMER ACT: WHY AND HOW GTLAW.COM.AU Streamlining the Competition and Consumer Act: Why and How Summary 1 Background The real issue with Australia’s “highly codified” competition The Harper Review’s Terms of Reference charge the Review law lies in its overly proscriptive approach, which prohibits Panel with the task of: too much conduct per se and relies too heavily on piecemeal exceptions and administrative processes to make up for this [C]onsidering whether Australia's highly codified initial overreach. competition law is responsive, effective and certain in its support of its economic policy objectives.1 This combination represents an undue impediment to competition, and imposes substantial and unnecessary costs This question mines a rich seam of criticism of what has on business and ultimately on consumers through increased become the Competition and Consumer Act 2010 (CCA), prices and stifled innovation. and what the CCA has become: its three hefty volumes, its 1500 pages and 400,000 words, and its section Relatively straightforward changes to the CCA would 44ZZOAAA(6)(a)(iv).2 Our legislation contrasts starkly reduce this burden and promote dynamic and responsive with the elegance of the two operative sections of the competition for the benefit of all Australians. These changes Sherman Antitrust Act of 1890 – hardly disfigured by the would: modest ornaments of the Clayton Antitrust Act of 1914 – and the two articles and single merger regulation that have + focus the per se prohibitions on the most anti- served Europe so well. competitive forms of conduct as described in the cartel provisions, removing the reference to exclusionary Some of these criticisms should be seen in context. Part IV provisions from section 45, assessing third line forcing of the CCA only makes up 5% of the Act’s total bulk; much and resale price maintenance under a competition of the remainder is taken up with details of implementation test, and replacing the price signalling provisions with a that are common to all jurisdictions in one form or another. prohibition against concerted conduct; Sections that are rarely or never used take up space but little time. The section numbers may be impossible to remember, + improve section 46 by retaining the “purpose” test but but they are easy enough to look up. more closely considering the “take advantage” limb; + remove remaining sector-specific frameworks; and The more fundamental problem with the highly codified CCA is in the real costs imposed by its overly proscriptive + provide a coherent set of defences to replace the approach and design. Its insistence on per se prohibitions, fragmented defences and exceptions throughout and its rigid regulation of specific conduct and specific the CCA, including a “single economic enterprise”, industries, involve high compliance and risk costs for a “collaborative activity” and an “efficiency or public business, and these costs result in some combination of benefit” defence. higher prices, stifled innovation and reduced incentives to invest, to the ultimate detriment of the Australian public. To mitigate these strict prohibitions, the CCA relies on an even more complex system of exceptions and exemptions together with the overlapping administrative processes of authorisations, notifications and formal and informal clearances. These are by their nature ad hoc solutions to a general problem, a combination that imposes burdens on businesses, regulators and ultimately consumers that could more easily be avoided by reconsidering the primary prohibitions of the CCA. 1. Terms of Reference, 3.1. 2. See for example Justice Steven Rares, “Introductory Remarks for the 2012 Competition Law Conference”, 5 May 2012; Allan Fels, “The Competition Review: The Competition Provisions of the Competition and Consumer Act”, May 2014; also cited in Andrew Burrell, “Fred Hilmer backs competition audit”, The Australian, 6 December 2013. 2 Streamlining the Competition and Consumer Act: Why and How Over many years advising clients on navigating the CCA, The Dawson Report reiterated this principle: we have directly experienced the substantial cost and delay that this approach imposes, whether because of the time The rationale behind a per se prohibition is that the and cost needed to prepare authorisations and notifications; conduct prohibited is so likely to be detrimental to the uncertainty surrounding ambiguous terms; or the economic welfare, and so unlikely to be beneficial, that arbitrary limits of per se prohibitions, which may be avoided it should be proscribed without further inquiry about its 6 by restructuring the arrangements around the prohibition at impact on competition. 3 considerable cost and to nobody’s benefit. This principle might have been implicit in the early antitrust In this paper we suggest some relatively straightforward laws and their common law antecedents, but its expression changes to the competition sections of the CCA that has taken some time. The prohibitions in the Sherman Act would simplify compliance, improve efficiency and promote are expressed without qualification, and if taken literally vigorous competition for the benefit of the Australian public. would prohibit a large proportion of economic behaviour: Every contract, combination in the form of trust 2 Focusing the per se prohibitions or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign It is now accepted in Australian and worldwide economics nations, is declared to be illegal.7 and jurisprudence that conduct should be prohibited per se only when it is anti-competitive with no redeeming public Every person who shall monopolize, or attempt to benefit in the overwhelming majority of cases. This principle monopolize, or combine or conspire with any other was explained in the Blunt Report: person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign The conduct that is proscribed absolutely is so proscribed nations, shall be deemed guilty of a felony.8 because it is believed that in the majority of cases such conduct will clearly substantially lessen competition. Such Indeed, early cases such as Trans-Missouri Freight appeared conduct is prohibited absolutely because the certainty to take the Sherman Act at its word: and administrative efficiency that is achieved outweighs When, therefore, the body of an act pronounces as illegal the difficulties and costs that would be entailed in having every contract or combination in restraint of trade or to prove anti-competitive effects in each case.4 commerce among the several states, etc., the plain and The principle was also put succinctly by the Hilmer Report: ordinary meaning of such language is not limited to that kind of contract alone which is in unreasonable restraint of Per se prohibitions are appropriate where conduct has trade, but all contracts are included in such language, and such strongly anti-competitive effects that it is almost no exception or limitation can be added without placing in 5 always likely to lessen competition. the act that which has been omitted by Congress.9 3. For example, vertical arrangements subject to a per se prohibition may in some cases be avoided through agency arrangements, which fundamentally alter the relationships but have no impact on the consumer. 4. Trade Practices Consultative Committee, “Small Business and the Trade Practices Act”, 1979. 5. At page 52. 6. At page 123. 7. §1. 8. §2. 9. US v Trans-Missouri Freight Association 166 U.S. 290 (1897) at 328. 3 Streamlining the Competition and Consumer Act: Why and How However, after twenty years the Supreme Court felt The category of tying or bundling moved towards the confident enough to decide in Standard Oil that the rule of reason with Jefferson Parish in 198413 and resale Sherman Act should be interpreted according to the “rule of price maintenance followed it with Leegin in 2007.14 As reason”: described by the Antitrust Modernization Commission in that year: [T]he construction which we have deduced from the history of the act and the analysis of its text is simply that [A]s new economic learning suggested possible pro- in every case where it is claimed that an act or acts are in competitive explanations for conduct previously assumed violation of the statute, the rule of reason, in the light of to be anticompetitive, the courts moved away from per the principles of law and the public policy which the act se rules of automatic illegality toward a more flexible embodies, must be applied.10 rule of reason analysis that would allow consideration of pro-competitive explanations of challenged business Two decades after apparently considering that every conduct.15 restraint of trade was illegal per se, the Supreme Court apparently felt that every restraint should be subject to the Although some commentators have wondered whether this rule of reason. The pendulum had only swung back slightly trend will leave any per se prohibitions standing,16 it appears by the time Chicago Board of Trade was decided: for now that the US and European jurisprudence have settled on a handful of hard-core violations that continue Every agreement concerning trade, every regulation to attract per se liability: namely, the horizontal agreement of trade, restrains. To bind, to restrain, is of their very between competitors to fix prices, share markets, restrict essence. The true test of legality is whether the restraint output or rig bids, together widely
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