6/04/2022·4 mins to read
Commerce Amendment Act strengthens laws against companies with substantial market power
Yesterday the Commerce Amendment Act 2022 (Amendment Act) received Royal assent and is now law.
This Act makes important changes to the Commerce Act 1986 (Act) that are expected to have a big impact on the conduct of businesses with substantial market power in New Zealand. Other important changes include shake-ups to how intellectual property (IP) rights are treated under the Act, and increased penalties for anti-competitive mergers.
We previously discussed these proposed changes when the Bill was first introduced, this can be read here.
Broader test for companies with substantial market power
The key change introduced by the Amendment Act is a strengthening of the current prohibition against taking advantage of market power in section 36 of the Act.
The new test would bring the law here in New Zealand in line with the Australian approach by adopting an “effects test.” This test essentially provides that a business with a substantial degree of power in a market must not engage in conduct that has the purpose or effect (including likely effect) of substantially lessening competition in that market, or any other market the business currently operates in or is likely to enter in the future. This is anticipated to capture a wider range of conduct than the previous test, which has been interpreted narrowly by the courts, and consequently in recent years has rarely been enforced by the Commerce Commission (Commission).
The key difference between the tests is that under an “effects test” the intention of the business is no longer the only focus when assessing the conduct. The effect of the conduct on competition alone can trigger a breach of the new test. The Minister for Commerce and Consumer Affairs Hon Dr David Clark highlighted this at the Select Committee stage of the Bill:
It is not about what a firm's intentions may be; it is about the actual state of competition in market. That is the purpose of the Act. So whether it's intentional or not, requiring well-resourced large businesses to manage their own actions in terms of whether they are causing harm in the market and harm to competition is entirely appropriate.
As a small, isolated economy, New Zealand is known to have concentrated markets, where frequently a handful of competitors account for a substantial share of the market. The new “effects” test will mean that those businesses, which may be viewed as having a substantial degree of power in a market, will have to begin considering the likely effects of their business activities on market competition when making commercial decisions.
The new test comes into force one year after Royal assent on 5 April 2023. However, importantly, it will apply to arrangements entered into before the Amendment Act came into force. Businesses which may be viewed as having a substantial degree of market power should begin considering the impacts of these amendments sooner rather than later.
The Act currently contains various “safe harbour” provisions that set out how IP rights are treated, and another provision dealing with breaches of confidence:
- Section 45 exempts the granting of IP licences from provisions of the Act relating to cartels and anti-competitive agreements.
- Section 36(3) provides that a firm does not breach section 36 solely by enforcing an IP right.
- Section 7 provides that the Act does not limit any law relating to breaches of confidence (such as sharing trade secrets), and that no law relating to breaches of confidence affects the interpretation of any of the provisions of the Act.
The Amendment Act repeals these three provisions, meaning that IP arrangements are now able to be scrutinised under competition law like any other arrangement.
These changes all come into force one year after Royal assent on 5 April 2023. However, there is a one-year grace period for the exemption of IP rights from provisions relating to cartels and anti-competitive agreements for arrangements entered into before this date.
Anti-competitive merger penalties
The Amendment Act increases the maximum penalty for anti-competitive mergers for companies from NZ$5 million to the greater of:
- NZ$10 million; or
- three times the value of any commercial gain resulting from the contravention; or
- if the commercial gain cannot be ascertained, 10% of turnover in each accounting period that the contravention occurred.
These new penalties come into force in one month’s time on 5 May 2022.
The Amendment Act entrenches the Commission’s power to grant interim authorisations in respect of contracts or arrangements that have the purpose, or likely effect, of substantially lessening competition, if it considers it is appropriate to do so.
This power was temporarily brought in due to COVID-19, but only one application has been provisionally authorised to date.
The Amendment Act means this power is now a permanent fixture in the Act. This comes into force in one month’s time on 5 May 2022.
Information sharing powers
The Amendment Act also grants the Commission wide discretionary powers to share information with other public agencies, including the Reserve Bank and the New Zealand Police.
The proposed new provisions would allow the Commission to do so where it considers that the information, “may assist the public service agency, statutory entity, or Reserve Bank, or the New Zealand Police in the performance or exercise of its functions, powers, or duties under this Act or any other legislation.”
This means that parties being investigated by the Commission need to consider carefully their responses to the Commission’s information requests (especially voluntary information requests), given the possible disclosure of that information by the Commission to other public agencies.
The broad information sharing powers come into force one month after the Amendment Act received Royal assent on 5 May 2022.
Get in touch
Many of these changes come into force very shortly and some have effect on arrangements that are already in place, so it is a good idea for businesses to start considering how these changes may affect their arrangements and interactions with other businesses.
If you would like to discuss these changes and what they mean for your business, please get in touch with one of our contacts.
Special thanks to Rebecca Colby and Elsie Stone for their assistance in writing this article.