05 September 2016

ACCC to create “safe harbours” with new class exemption powers

Class exemptions - Overview

The draft legislation provides for a new process for the ACCC to grant “class exemptions” for particular kinds of conduct.

The current authorisation and notification framework in the CCA enables the ACCC to grant individual exemptions for parties in respect of conduct that is specifically notified to the ACCC.

The new class exemption laws will enable the ACCC to create “safe harbours” in relation to particular types conduct if satisfied that the conduct would:

  • not have the likely effect of substantially lessening competition; or
  • be likely to result in a net public benefit.

Once a class of conduct is exempted, businesses that engage in the conduct the subject of the exemption will be immune from the operation of the competition provisions in Part IV of the CCA, including prosecution by the ACCC and action by third parties.

Class exemptions - Practical considerations

Under the draft legislation, the ACCC may determine the limitations that apply to the class exemption, including limiting the safe harbour to:

  • persons of a specified kind;
  • circumstances of a specified kind; or
  • conduct that applies with specified conditions.

The maximum period for a class exemption will be 10 years, but the ACCC can in its discretion specify a shorter period for its application.

Class exemptions issued by the ACCC will be reviewable by the Australian Competition Tribunal.

Ultimately, the benefit to businesses of the new class exemption power will depend on how it is used by the ACCC. Like class orders issued by ASIC, class exemptions should have the potential to provide greater certainty for businesses about their ability to engage in commercial activity, and significantly reduce transaction costs.

Block exemptions regimes already exist in a number of other jurisdictions, including the European Union and certain Member States of the EU. The EU’s block exemption for vertical agreements and concerted practices has been hailed as promoting both efficiency and certainty. That block exemption provides safe harbour to certain types of vertical supply agreements provided that:

  • they do not contain either “hardcore restrictions” (such as resale price maintenance) or certain non-exempted restraints (such as quantity-forcing obligations or restraints of trade exceeding five years), and
  • the market shares of the parties to the particular arrangement do not exceed 30%.

An exemption of this nature would provide clear guidance to Australian businesses when negotiating supply arrangements, with the potential to reduce transaction costs and increase efficiency.

Class exemptions may also assist in providing greater certainty in relation to arrangements that contain both vertical and horizontal elements, such as arrangements between competitors for the supply of goods or services where they meet the necessary criteria and are not a sham for hard-core infringements like market sharing or price-fixing.

What next?

The ACCC has not yet released any guidance in relation to the types of conduct that might be covered by a class exemption. However, we would hope that the ACCC consults with businesses on the areas that would most benefit from coverage. The types of conduct covered by current EU block exemptions, and conduct relating to research and development, would be welcome early candidates.

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