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LEGT 1710 BUSINESS AND THE LAW


Lecture 8 Competition Law
Lecturer: Dr Leela Cejnar
2013 The University of New South Wales Sydney 2052 Australia The original material prepared for this guide is copyright. Apart from fair dealing for the purposes of private study, research, criticism or review, as permitted under the Copyright Act, no part may be reproduced by any process without written permission. Enquiries should be addressed to the Head of School, Taxation and Business Law, UNSW, Sydney

Monday 9:00 Quad G042 Monday 10:00 Law 301 Monday 10:00 Quad G042 (Marys class) Thursday 9:00 Webster 302 Thursday 10:00 Webster 302 Thursday 11:00 Webster 302 Tuesday 12:00 Gold G05 Tuesday 13:00 Gold G05 Tuesday 14:00 Quad 1047 Tuesday 15:00 Quad 1047 Wednesday 14:00 Quad 1047 Wednesday 15:00 Quad 1047 Thursday 10:00 Webster 215 Thursday 11:00 Mat 313 Thursday 12:00 Mat 313 (Danielle/Anthony) Thursday 12:00 Webster 302 Thursday 16:00 Gold G03 Thursday 17:00 Gold G03

ALSO CHECK BLACKBOARD AND myUNSW


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Assignment 2
Due next Monday 23 September, by 5pm ONLINE SUBMISSION ONLY Via Blackboard on Turnitin Must use references: do not plagiarise Must include a Bibliography

The legislation
From 1 January 2011: Competition and Consumer Act 2010 (Cth) Pre-2011: Trade Practices Act 1974 (Cth)

Overview of Competition Provisions Competition and Consumer Act 2010 (Cth)


Part IV Cartel provisions (ss 44ZZRA to 44ZZRV) Anti-competitive agreements (s 45) Misuse of market power (s 46) Exclusive dealing (s 47) Resale price maintenance (s 48) Mergers and acquisitions (s 50) Enforcement and remedies (Pt VI) Authorisation, notifications and clearance (Pt VII)
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Object of the Competition and Consumer Act 2010 (Cth) Section 2 To enhance the welfare of Australians through the promotion of competition and fair trading and the provision of consumer protection

Application of the Competition and Consumer Act 2010 (Cth)


Applies to: Conduct of corporations Business and commercial activities of individuals The professions Business activities of government

Market definition
Identification of market: essential 1st step to assessing competition ASK: Who are/could be in competition? See Latimer at 8-040

in trade or commerce See Latimer at 8-020

Market definition
Product Geographic Time/period of time

The tests
Competition test What is the effect or likely effect on competition in a market? Per se test Speeding offence

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Misuse of market power


Separate test To be discussed later

Competition test
Does the conduct have the purpose, effect or likely effect of substantially lessening competition in a market? Anti-competitive agreements EXCEPT agreements that contain an exclusionary provision/primary boycott Exclusive dealing EXCEPT third line forcing Mergers

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Anti-competitive arrangements: s 45
A corporation shall not make a contract or arrangement or arrive at an understanding if a provision in it has the purpose or would have or be likely to have the effect of substantially lessening competition

Anti-competitive agreements: s 45
Contract, arrangement or understanding Purpose Effect or likely effect Substantially lessening or competition

See Latimer at 8-050 to 8-051

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Exclusive Dealing: s 47
Forms of exclusivity arrangements that are prohibited include: product exclusivity - Minimum quantity contracts - Requirement contracts customer exclusivity territorial exclusivity Such arrangements may be imposed by either supplier or acquirer See Latimer at 8-361
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Mergers: s 50
Section 50(1): A corporation must not directly or indirectly: (a)acquire shares in the capital of body corporate; or (b)acquire any assets of a person if the acquisition would have the effect or likely effect of substantially lessening competition See Latimer at 8-570 to 8-580
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Mergers: what to look for?


Actual and potential level of import competition Height of barriers to entry into the market Level of concentration Degree of countervailing power in the market Likelihood of acquirer being able to significantly and sustainably increase prices or profit margins Extent to which substitutes are available in the market Dynamic characteristics of the market Likelihood the acquisition would result in the removal from the market of a vigorous and effective competitor Nature and extent of vertical integration in the market (ie where business expands along different points in relation to the same production path, such as where manufacturer also owns its supplier/distributor etc)
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ACCC Merger Guidelines


Merger Guidelines 2008 See ACCC website: www.accc.gov.au See Latimer at 8-572

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Per se test
Per se breach: impact on competition does not matter if you engage in the conduct, you are in breach of the Act

Per se prohibitions
Cartel conduct Contracts containing exclusionary provisions/primary boycotts Third line forcing Resale price maintenance

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Cartel conduct: ss 44ZZRA to 44ZZRV


Corporations must not make or give effect to a contract, arrangement or understanding that contains a cartel provision

Cartel conduct
What is a cartel? When businesses agree to act together instead of competing with each other Designed to drive up profits of cartel members while maintaining illusion of competition Cartels are illegal

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Cartel conduct
A cartel provision is a provision relating to: Price-fixing - Price fixing was formerly dealt with under s 45A, now repealed Restricting outputs in the production or supply chain Allocating customers, suppliers or territories Bid-rigging/collusive tendering by parties who are competitors

Cartel conduct: TUTORIAL


Tutorial materials for week 9 ACCC module on Cartels Group work in class Quiz Questions ACCC feedback

See Latimer at 8-120


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Cartel conduct
The Marker A Short Film About Cartels The Australian Competition and Consumer Commission (ACCC) has made a fictional short film called The Marker to demonstrate the devastating impact cartels can have on the people involved. The film was inspired, in part, by Melbourne University research showing gaps in business awareness of the illegality of cartel conduct. The film shows how cartel activity can ruin relationships, careers and long-term financial security, and may ultimately land guilty parties in jail. The film can be viewed at www.accc.gov.au/themarker.

Exclusionary provisions/ Primary boycotts: s 45 (2)(a)(i)/ s 45(2)(b)(i)

A corporation shall not make a contract or arrangement or arrive at an understanding if it contains an exclusionary provision

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Exclusionary provisions: s 4D
Provision of a contract, arrangement or understanding Made by parties competitive with one another Purpose of preventing, restricting, limiting Particular persons or classes of persons Need to identify boycott of some other person or class or persons

Exclusionary provisions: s 4D
Cases: News Limited v Australian Rugby Football League Ltd News Limited v South Sydney District Rugby League Football Club Ltd See Latimer at 8-220

See Latimer at 8-220

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Third line forcing: s 47(6) and 47(7)


Occurs where A forces B to deal with third party, C Examples: A supplies B on condition that B acquires from C A refuses to supply B because does not agree to a condition that B acquire from C

Third line forcing


Subject to the per se test Unlike other subsections of s 47 which are subject to the competition test See Latimer at 8-410

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Third line forcing


Case: Castlemaine Tooheys Ltd v Williams and Hodgson Transport Pty Ltd See Latimer at 8-410

Resale price maintenance: s 48 and ss 96-100 Relates to price at which goods acquired can be on-sold Supplier dictates resale price Per se breach See Latimer at 8-440 to 8-450

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Resale Price Maintenance


6 types of conduct :
making it known inducing entry or offer to enter into an agreement not to sell or resupply below specified price withholding supplies for purpose of maintaining price, without agreement use of a price statement, likely to be understood as requiring a minimum resale price

Resale Price Maintenance: Key Terms


Stating price charged must be within a range of particular figure Couching price in terms of recommendation does not prevent it from being a price specified not genuine recommendation Resale price maintenance deals with price at which the acquirer will re-sell the goods or services acquired (ie the on-selling/resale price)

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Resale price maintenance


Cases: ACCC v Sundaze Australia Pty Ltd ACCC v Jurlique International Pty Ltd See Latimer at 8-450

Misuse of Market Power: s 46


Corporation with a substantial degree of market power Taking advantage For a proscribed purpose: eliminating or substantially damaging a competitor preventing entry deterring or preventing competitive conduct

See Latimer at 8-300 to 8-301


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Misuse of Market Power: s 46


Cases: Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Co Ltd Melway Publishing Pty Ltd v Robert Hicks Boral Besser Masonry Ltd v ACCC ACCC v Australian Safeway Stores Pty Ltd See Latimer at 8-301
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Authorisation
ACCC can give an authorisation (exemption) to agreements affecting competition if: The benefit of the conduct outweighs any anticompetitive detriment There is a public benefit: Business efficiency Expansion of employment Promotion of industry Growth in exports Economic development Assistance to small business Lodgement fee payable See Latimer at 8-620 to 8-710
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Authorisation
What can the ACCC authorise? an exclusionary provision (primary boycott) an anti-competitive agreement (including a price agreement) a secondary boycott exclusive dealing resale price maintenance mergers

Notification
What is an exclusive dealing notification? Businesses may obtain immunity for conduct that might risk breaching the exclusive dealing (including third line forcing) provisions of the Act by lodging a notification with the ACCC Can engage in notified conduct 14 days after notification lodged and lodgement fee paid Notification lasts for 3 years or until ACCC revokes notification See Latimer at 8-620
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Enforcement and remedies


Part VI of the Competition and Consumer Act 2010 is entitled Enforcement and Remedies This part contains the provisions which enable the ACCC to institute enforcement proceedings against corporations and individuals that breach the Act See Latimer at 8-770

Enforcement
Civil proceedings for recovery of pecuniary penalties as a debt due to the Commonwealth Criminal penalties for cartel conduct

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Penalties: Competition Provisions


Penalty payable by corporation for breach of Pt IV is the greater of the following: $10m; or three times value of the illegal benefit; or 10% of turnover in preceding 12 months Individuals: civil penalty of up to $500 000 per offence Cartel conduct:
criminal penalty for individuals up to 10 years jail and/or fines of up to $220 000 per offence

Other orders
Injunctions: s 80 Damages: s 82 Divestiture: s 81 Punitive orders Adverse publicity: public disclosure that you have breached the Act Non-punitive orders, such as: community service order probation order, order requiring disclosure of specific information corrective advertising order Order disqualifying person from managing corporations: s 86E Court enforceable undertakings: s 87B See Latimer at 8-3770 to 8-860
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Court enforceable undertakings


ACCC may accept written, legally enforceable undertakings: s 87B Undertaking may be withdrawn or varied at any time with the consent of the Commission ACCC has right to enforce where term of undertaking has been breached and can apply to Federal Court for order ACCC guidelines on s 87B see accc.gov.au

Administration and court structure


Australian Competition and Consumer Commission (ACCC) Australian Competition Tribunal National Competition Council (NCC) Federal Court of Australia
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The ACCC
Agency responsible for ensuring compliance with the Act Independent Commonwealth statutory authority formed in 1995 Prior to 1995: Trade Practices Commission or TPC

The ACCC
Key function to promote competition and fair trading in the market place to benefit consumers, business and the community. Also regulates national infrastructure industries (gas, electricity, telecommunications)

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The ACCC
Priorities areas include: serious cartel conduct; primary boycotts, deceptive conduct, unconscionable conduct, misuse of market power ACCC Corporate Plan: www.accc.gov.au

ACCC investigations and obtaining evidence


Power to obtain evidence: Section 155 powers and the reason to believe requirement Pt XID : Search and seizure/power to enter Other investigative powers

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ACCC Policies
ACCC Cooperation Policy for Enforcement matters ACCC Leniency Policy/Immunity Policy for Cartel Conduct

Next week
Property Law Read Latimer, ch 3

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