Competition is a process of rivalry between businesses who seek ultimate commercial gain by out-doing their competitors. The misuse of market power provision (Section 46) under the Competition and Consumer Act 2009 (CCA) prohibits a corporation with substantial market power from taking advantage of that market power for a prohibited purpose. The prohibited purposes include:
(a) Eliminating or substantially damaging a competitor … in that or any other market;
(b) Preventing entry of a person into that or any other market; and
(c) Deterring or preventing a person from engaging in competitive conduct in that or any other market.
This provision is important and a necessary part of competition law, particularly in Australia where more than 2 million small businesses make up over 97% of all businesses. The CCA enhances the promotion of competition and fair trading as well as protecting consumers rights. Section 46 helps to regulate unilateral anti-competitive conduct. Overtime, there have been multiple reviews of the provision as the tests to prove a corporation aims to “take advantage” with a “purpose” of “damaging competitors” continues to be a difficult feat.
The Turnbull government has now been guided by Professor Ian Harpers Independent Competition Policy Review and will legislate to amend Section 46 to effectively focus on the long term interest of both small businesses and consumers.
Harper’s proposed recommendations include:
1. Removing the “take advantage” test;
2. Moving from a “purpose” test to a “purpose, affect or likely affect” test;
3. Move from a focus on “damage to a competitor” to a focus on the competitive process i.e. “substantially lessening competition”;
4. Introduce mandatory factors which courts must take into account; and
5. Additional measures to reduce uncertainty.
Broadly speaking, the reframing of Section 46 will simplify the legislation and clarify the provisions prohibiting predatory pricing, the meaning of the “take advantage test” and the meaning of the “purpose test”. This will assist the courts in determining whether the conduct of a corporation has the purpose, or would have or be likely to have the effect, of substantially reducing competition in that, or any other market.
It is expected the government will consult on draft legislation and the changes will be introduced to Parliament later in 2016. We will continue to keep updated with the developments of Section 46 – so watch this space!