Are you too powerful?

Recently the Senate passed the Competition and Consumer Amendment (Misuse of Market Power) Act 2017 (Cth) (“Amendment Act”).

Under the Amendment Act, firms with a substantial degree of market power will now need to carefully consider whether any conduct they engage in, or propose to engage in, could have the purpose, or likely effect, of substantially lessening competition in any Australian Market.

Currently section 46 of the ACCC Act prohibits a firm that has a substantial degree of power in a market from taking advantage of its market power for the purposes of:

1. Eliminating or substantially damaging a competitor;
2. Preventing the entry of a person into a market; or
3. Deterring or preventing a person from engaging in competitive conduct in the market.

However, to make out a contravention to section 46, the aggrieved competitor, supplier or customer must demonstrate three connected things, in that a firm:

1. Possesses market power;
2. Has taken advantage’ of its market power; and
3. Acted for a proscribed purpose.

There have been many cases regarding section 46, however, mixed judicial outcomes have led many to argue that it is too difficult to successfully prosecute firms for misusing their market power under the current prohibition and that it is not fit for purpose.

The new provision recently passed for section 46 represents a significant change to the current misuse of market power prohibitions, as it:

1. Introduces, for the first time, an “effects test”, whereby conduct that has or is likely to have the effect of substantially lessening competition (and no longer just such a purpose) will now be caught;
2. Omits that “take advantage” element of s 46 which tried to link the conduct with the market power – that is, was the conduct related to the market power? In engaging in the conduct, did the firm use that market power or did the market power facilitate the conduct?
3. That will no longer be the test. Any conduct risks challenge under the new provision if the firm possesses substantial market power, irrespective of whether there is a connection between the firm’s market power and the conduct in question;
4. Amends the ‘purpose’ element of s 46, changing this element from a purpose directed at a competitor (or another person) to a purpose of substantially lessening competition.

The overall effect to the changes is to expand the scope of section 46 which will assist is promoting competition. Also, it will attempt to eliminate small business’ being bullied out of the market by larger business.