Is Breaking Up Hard to Do?

Published On 03/04/2014 | By Susan Zhuang | Enforcement, Reform

On 6 March 2014, Senator Xenophon introduced a private member’s Bill intended to give the Federal Court power to order corporations to reduce their market share or power if they breach the prohibition on the misuse of market power provisions in section 46 of the Competition and Consumer Act (the CCA).

The Competition and Consumer Amendment (Misuse of Market Power) Bill 2014 (the Bill) seeks to introduce a new divestment remedy for contraventions of s 46.  Under the proposal, the Federal Court could order corporations with a substantial degree of market power, or a substantial share of a market, to reduce their market power or market share if it has found that the corporation has breached either:

  • s 46(1) (taking advantage of a substantial degree of market power for a proscribed anti-competitive purpose) or
  • s 46(1AA) (below-cost pricing by corporations with a substantial market share for a proscribed anti-competitive purpose)

The Bill proposes that the ACCC, or any other person, can apply for a divestment order within three years of the breach, and the reduction of market power or market share must occur within two years of the divestment order. The Bill would also permit the Court to make divestment orders with the consent of all parties, even if a contravention has not been established.

Currently, the Federal Court can only make divestiture orders in relation to mergers that result in a substantial lessening of competition in breach of s 50 or 50A of the CCA. Unlike the position in some overseas jurisdictions, there is no general power to order divestment, and the only way that divestments can be negotiated by the ACCC is by agreeing not to oppose the merger on provision of a court-enforceable undertaking under section 87B of the CCA.

Senator Xenophon is clearly focussed on the high level of concentration in the grocery market as illlustration of the need for the measures in the Bill.  The second reading speech and the Explanatory Memorandum discuss the proposed reform as giving the ACCC and Courts another option to tackle abuses of market power, as well as creating an additional disincentive for corporations to misuse their market power.

General divestiture remedies are available in the United States and United Kingdom

The United Kingdom’s Competition and Markets Authority has the power to order divestment to address any adverse effects on competition uncovered in its market investigations, including for breaches of the . This year, the UK regulator has already ordered divestments in the cement sector and recently announced a revised proposal to require divestment in the private healthcare market on the basis that a private hospital operator may have market power with respect to patients in a particular geographic area  (see the report released on 2 April here and read also our London office’s report here).

In the United States, Courts can order divestment as a remedy for monopolisation or monopoly behaviour under the Sherman Act.  While used very rarely, high profile divestments include:

  • the court-ordered vertical divestiture of Microsoft Corporation, as the remedy for its monopolization of the market for Intel-based PC software (later overturned on appeal and settled); and
  • the divestiture orders which led to the break up of AT&T into seven operating companies and a long-distance company.

Pre-empting “root and branch” reform

The Bill pre-empts the “root and branch” review of competition laws (see our posts here and here), which has been tasked with examining section 46 and the possibility of divestment remedies.

In the US and UK, divestiture orders are generally made to prevent or address the accumulation of market power, whereas the Bill is directed to remedying the actual misuse of market power, once gained. However, Senator Xenophon considers that the mere existence of a divestment remedy for s 46 breaches will cause corporations to change their culture and behaviour. It will be interesting to see whether the root and branch review will consider general divestment powers, as are available overseas, or specific prohibition-based divestment powers, as proposed in the Bill, or both.

The Bill is in its early stages, with the second reading moved and debate adjourned on 6 March 2014.  Stay tuned to In Competition for updates on the Bill and the root and branch review.

 

Photo credit: Coast Guard Photo/Sabrina ElgamFlickr / Creative Commons Attribution 2.0 Generic (CC BY 2.0) (cropped and remixed to black and white)

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About The Author

is a solicitor in the Competition and Regulatory team of King & Wood Mallesons, based in the Sydney office. As an avid online shopper, she takes a keen interest in consumer protection issues.

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