On 5 April 2023 the Commerce Amendment Act 2022 comes into full force. Significantly this means:
- New Zealand’s misuse of market power provision now uses an “effects test”. Persons with substantial market power (SMP) are prohibited from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition in the market they have SMP in, or any other market they directly or indirectly supply or acquire goods or services. The New Zealand Commerce Commission (NZCC) has published Misuse of Market Power Guidelines which set out how it intends to approach the new law. This is significant new “soft law”.
- Intellectual property (IP) exceptions in the Commerce Act are now repealed. IP rights will now be subject to the same competition tests as any other property right. There will however be a 1-year transitional period for existing agreements which had relied on the IP exception for agreements. The NZCC has published draft guidelines on the application of competition law to intellectual property rights.
- Cartel conduct now extends to land covenants, in addition to contracts, arrangements and understandings. There will however be a 1-year transitional period for covenants given before the commencement date.
10 things to know about the new law on misuse of (substantial) market power:
- NZ law is again aligned with Australia’s.
- More than one firm can have SMP – important for NZ’s concentrated markets.*
- The old “safe harbour” of normal business conduct to defend actions by dominant firms is gone. This effectively gave a defence if a small player could / would do the same, regardless of any harm to competition.
- The new test recognises that unilateral (single firm) conduct by dominant firms can have anti-competitive effects which are unlikely when undertaken by small firms. “Special duties” may be an unpopular phrase but firms with SMP will have additional responsibilities.
- Areas to watch out for include refusals to supply (including implied refusals), margin/price squeezing, exclusive dealing, loyalty rebates, tying/bundling, limit pricing/predation, and (sometimes) enforcing IP rights (eg where an IP monopoly equates to SMP and the IP is an essential input).
- Despite being called an (economic) “effects test” due to the new focus on markets (rather than targeted competitors), a “purpose” component to the prohibition remains.
- Having a clear legitimate commercial rationale for “conduct” will remain important.
- Expect arguments on market definition to be a real feature of the new test.
- The test is not unique – NZ has had the same test for contracts for decades, and for mergers since 2001. Many Australian experts say in practice the same change there has not been as great as expected. Although there has been an uptick in private litigation.
- The test will remain hard to prove. Distinguishing vigorous competition (which benefits consumers on the long run) from exclusionary anti-competitive conduct is challenging. But the NZCC welcomes these changes and is a motivated regulator.
*The NZCC can be expected to see the new law as critical, especially when NZ merger control generally permits mergers with higher market concentration due to our small market/s
If you have queries on how the new law might affect your business, you can contact andrew.matthews@matthewslaw.co.nz and danny.xie@matthewslaw.co.nz.
We also celebrate 10 years of Matthews Law. Many thanks to our team past & present, our valued clients and colleagues for a decade of support.
Links
NZCC’s Misuse of Market Power Guidelines
ML Misuse of Market Power Legalwise Powerpoint
ML newsletter on the draft NZCC Misuse of Market Power Guidelines