12/03/2021·3 mins to read
New Bill seeks to strengthen prohibition on taking advantage of market power
On 10 March 2021 the Commerce Amendment Bill (Bill) was introduced to Parliament. If successfully passed into law, this Bill will introduce a suite of changes to the Commerce Act 1986 - with the most important being a significant re-writing of the prohibition on taking advantage of market power.
- The Bill proposes amendments to NZ’s prohibition on taking advantage of market power, which would likely apply to a wider range of unilateral conduct than the current test, and should be easier to enforce.
- This is significant as the current test is widely considered to be ineffective.
- Other proposed amendments include changes which would allow IP arrangements to be scrutinised under competition law like any other form of arrangement, and a proposal to increase the maximum penalties for anti-competitive mergers.
Key features of the Bill
Proposed amendments to section 36
Section 36 currently prohibits companies with ‘substantial market power’ from ‘taking advantage’ of that market power for specific ‘prohibited purposes’. The ‘taking advantage’ of test has been interpreted narrowly by the courts (ie requiring analysis of whether the company would have done the same thing if they didn’t have market power). This has rendered section 36 difficult to apply and enforce in practice.
The Bill proposes to amend section 36 to prohibit firms with substantial market power from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition in a market. The relevant markets include the market in which the firm has the substantial degree of power and any other market in which the firm, or an interconnected person, supplies or acquires, or is likely to supply or acquire, goods or services (including indirectly through other persons).
The proposed amendments to section 36 will bring it into line with the corresponding test in Australia, which focuses on unilateral conduct that has the purpose or (likely) effect of substantially lessening competition in a market (ie an “effects test”). The Government believes that an effects test will capture a broader range of unilateral conduct, and will be more straightforward to enforce.
The Bill also proposes that parties with substantial market power should be able to apply for authorisation in relation to proposed conduct that is likely to breach section 36.
Proposed amendments to the treatment of IP rights
The Act currently contains two 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 Bill proposes to repeal these three “safe harbours for intellectual property”, meaning that IP arrangements will be able to be scrutinised under competition law like any other form of arrangement.
These changes could have significant consequences for IP owners and licensors, which we will discuss in more detail in a separate article.
Increased penalties for anti-competitive mergers
The current penalties for anti-competitive mergers are $500,000 for individuals and $5 million for companies. The Bill proposes to increase the maximum penalties for anti-competitive mergers to bring these in line with the maximum penalties for other forms of anti-competitive conduct - currently up to $500,000 for individuals, and for companies, the greater of $10 million, three times the value of any commercial gain from the contravention, or, if the commercial gain is unknown, ten per cent of turnover of the business in question.
This amendment likely follows the Commerce Commission’s increased interest in non-notified mergers over the past few years, and the 2019 case Commerce Commission v First Gas, in which First Gas Limited was penalized $3.4 million by the High Court for acquiring the assets of a competitor - the highest penalties awarded in NZ to date in relation to an anti-competitive merger.
Greater scope for the Commission to share information with other public agencies
The Bill also proposes granting the Commerce Commission a wide discretion to share information it acquires while exercising its statutory powers with other public agencies. 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 in the performance or exercise of its functions, powers, or duties under this Act or any other legislation.”
In theory, this would mean for instance that if the Commission is investigating a company for alleged cartel conduct and in the course of the investigation obtains information from the company around its tax obligations, the Commission could disclose that information to the Inland Revenue Department if it considers that will assist IRD in the performance of the IRD’s own functions under tax legislation unrelated to the cartel investigation. If this is enacted, it will mean that parties being investigated by the Commission will need to consider carefully their response to information requests from the Commission (especially voluntary information requests), given the possible disclosure of that information by the Commission to other public agencies which could use that information against those parties.
The Bill is currently undergoing its First Reading. If approved, it will be referred to a Select Committee for consideration. The Select Committee will be seeking submissions on the Bill so there will be the opportunity to have further input on the Bill’s wording.
If the Bill is passed, the amendments to section 36 will come into force 1 year after the date the Bill is given Royal Assent (the Commencement Date), but notably will apply from that point to conduct which began before that date. This means that businesses which could be viewed as having a substantial degree of market power should begin considering the impacts of these amendments soon.
However, some other amendments, including in relation to the IP provisions, will be subject to a three-year transitional period beginning on the Commencement Date.