The New Zealand Government has announced its decision to make further major changes to NZ’s competition (antitrust) law. Assuming it is re-elected in September’s General Election, the Government anticipates introducing a Bill in early 2021 that would:
- replace the test for abuse of market power;
- remove IP exceptions;
- increase pecuniary penalties for breach of merger control laws (making them consistent with the penalties for anticompetitive conduct);
- expand the Commerce Commission’s (domestic) information sharing powers; and
- increase the number of Commissioners from 6 to 8.
Consistent with a trans-Tasman Single Economic Market, the changes would align our law with Australia by adopting an “effects” test. This would also make an increasingly powerful regulator more powerful – recognised by the proposal to expand information sharing powers and increase the number of sitting Commissioners. An anticipated benefit of removing the current IP exceptions is that it will be “easier for businesses to access, utilise, and build upon existing IP, in situations where this is currently constrained by anti-competitive conduct”.
Complexity & challenges will remain with an effects test for misuse of market power
In practice, regulators and courts worldwide, regardless of the law, face challenges distinguishing legitimate aggressive large firm conduct from anticompetitive behaviour. We expect the proposed new test for misuse or abuse of market power (also known as monopolisation or unilateral conduct) would similarly remain challenging in practice. Businesses may face a period of uncertainty. Lawyers and economists will likely benefit.
Why change? Criticisms of the current law – an unintended safe harbour?
Current law requires a firm with substantial market power (SMP) to take advantage of that SMP for an anticompetitive purpose(s). This has been interpreted as requiring a link between the SMP and conduct. There is arguably no link if a firm without SMP, but otherwise in the same position, would do the same thing. Critics say this has effectively created a “safe harbour” for conduct that is okay when undertaken by a small firm, even if it is harmful when undertaken by a large firm.
Proposed new test – amending section 36 of the Commerce Act
The Act would be amended to prohibit a firm with SMP from engaging in conduct that “has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market”. According to the Minister of Commerce and Consumer Affairs, the purpose of the proposed change is to “focus the prohibition directly on the anti-competitive nature of the conduct (as opposed to whether a firm without market power would have engaged in the conduct, as at present)”. Concerns about the new law may be alleviated to some extent by the fact that this test is already used to assess agreements and mergers, and are in the equivalent Australian law.
Other challenges may remain
These include the possible loss of guidance from well-established case law, including, for example, the status of the well-established access pricing rule established by the Privy Council in Telecom Corp of New Zealand Ltd v Clear Communications Ltd (1994) – known as the Efficient Component Pricing Rule (ECPR) or Baumol-Willig pricing, which compensates the access provider for the “opportunity cost” of giving a third party access. (Official papers may not explicitly state this, but clearly intended this outcome.) However, there is no suggested alternative for access pricing methodology which, to us, seems a lost opportunity. Are courts expected to design access pricing methodology?
The proposed changes may also provide more scope for challenging anticompetitive use of demand-side market power (ie powerful purchasers). However they may not be a complete panacea. For this reason, the Minister signals that those issues “will be addressed to an extent through forthcoming amendments to the Fair Trading Act 1986 to prohibit unfair commercial practices”. This change would also be consistent with the Minister’s track record of legislative changes aimed at protecting consumers and small-businesses.
Links to official papers
Review of Section 36 of the Commerce Act and Other Matters: Policy Decisions – Cabinet Paper
Impact Statement: Review of Section 36 of the Commerce Act and Other Matters – Cabinet Paper