Federal Government responds to the call for a prohibition on concerted practices
The exposure draft legislation just released confirms the Federal Government’s intention to introduce a new prohibition in the CCA banning concerted practices which have the purpose or effect of substantially lessening competition.
Just what impact this new prohibition will have remains to be seen, as the concept of concerted practices is not defined in the CCA and is new to Australian law, and it is not clear when such practices will be determined to have the purpose or effect of substantially lessening competition.
Why did the Harper Panel recommend this change and what is it intended to do?
In its Final Report the Harper Panel concluded that the current price signalling and information exchange provisions in the Act were not fit for purpose and needed to be replaced completely. The major concerns with the provisions were that they were overly complex, uncertain in application and potentially did not capture certain inappropriate co-ordinated conduct between competitors, such as information exchange about prices, customers and commercial strategy. Another concern was that they did not apply across the board to all industries, with the price signalling provisions being limited in application to certain financial services products.
The concern about not capturing certain types of unlawful collaborative conduct arose from the perception that the need for some level of “commitment” or “obligation” between competitors meant a mere pattern of signalling or exchanging information might not constitute an unlawful understanding. It was also considered that the current price signalling provisions had the potential to overreach and capture pro-competitive conduct.
The new “concerted practice” prohibition, which borrows from European Union law concepts, is designed to capture patterns of conduct between competitors which have the purpose or effect of substantially lessening competition, but fall short of flowing from an arrangement or understanding between those competitors. As part of a redesign to section 45 of the CCA, it will apply to all conduct in trade or commerce, and not be limited to any particular sectors.
What is a “concerted practice”?
The concept of concerted practice is not defined in the draft legislation and the absence of a definition potentially confers a very broad scope to the proposed new provision.
The Harper Panel noted in its Final Report that the word “concerted” means “jointly arranged or carried out or co-ordinated” and expressed the clear view that impugned conduct must involve more than mere unilateral or parallel conduct. However, precisely what level of level of co-ordination or “jointness” of activity is required between two companies to constitute a concerted practice is quite unclear.
The Explanatory Memorandum to the draft bill does not provide any clear guidance. It states that the interpretation of the concept should be informed by international approaches to the concept, “where appropriate”. It posits that “international jurisprudence suggests that coordination between competitors, where cooperation between firms is substituted for the uncertainties and risks of independent competition, is potentially a concerted practice”. Such an approach skirts the key question of what level of coordination, and in particular reciprocity, renders conduct unlawful, as most market behaviour shows some level of coordination.
In view of the potential breadth of the concept, the Government has wisely followed the Harper Panel’s recommendation that the new prohibition not be per se unlawful (automatically unlawful), but instead be subject to the conventional substantial lessening of competition requirement in section 45 of the Act.
ACCC issues guidance
The ACCC has today release draft guidance on the proposed concerted practices prohibition in its Draft Framework for Concerted Practices Guidelines.
In the ACCC’s draft guidelines, a concerted practice “is a form of coordination between competing businesses by which, without them having entered a contract, arrangement or understanding, practical cooperation between them is substituted for the risks of competition”.
The Draft Guidelines also sets out examples of conduct which the ACCC considers would and would not be likely to amount to a concerted practice.
The ACCC has invited comment on the draft guidelines, with submissions (which will be public, subject to the ACCC’s standard confidentiality process) due by 3 October 2016.
What does this mean for business?
In our experience businesses are generally likely to be well-prepared for this amendment, as they are already very cautious about interactions with competitors and public or private disclosures of price, customer and other strategic information. However, in view of the potential breadth of the new concept, and the uncertainty of what patterns of conduct might inadvertently been seen to have the potential effect of substantial lessening of competition, a broader review of these practices, even where previously regarded as innocuous, may pay substantial dividends.