ACCC authorisations keep industries afloat during COVID-19
Faced with the changing tides of market forces, competitors are normally forced to sink or swim, solo. But in the face of COVID-19, ACCC authorisations have provided a much-needed third option for embattled businesses—to co-operate. The result of this is a life raft on which many industries have managed to stay afloat.
What is authorisation?
The ACCC has the power to authorise conduct that would otherwise be a breach of Part IV of the Competition and Consumer Act 2010 (Cth) (CCA) where the likely public benefit outweighs the likely public detriment or, for some types of conduct, if that conduct would not have the effect or likely effect of substantially lessening competition.
While an application is being assessed for final authorisation, the ACCC also has power to grant interim authorisation for the proposed conduct. The ACCC may revoke an interim authorisation at any point in time.
Since the onset of the economic tsunami of COVID-19, a wide range of applicants have applied to the ACCC for authorisation to engage in co-operative activities, including sharing knowledge, entering into and carrying out agreements. Without authorisation, those co-operative activities would risk breaching prohibitions against cartel conduct, anti-competitive agreements and/or concerted practices.
Seeking safe harbour: applications for authorisation during the COVID-19 pandemic
COVID-19 was the impetus for a significant number of applications for authorisation in the nine week period between 19 March and 21 May 2020—the 32 applications during this period is significantly higher than the 22 applications lodged in all of 2019.
Authorisation for conduct that would otherwise be considered anti-competitive has been sought to address COVID-19 specific problems such as medical shortages, as well as to alleviate economic hardship that many industries are facing as a result of the pandemic. Authorisation applications cover an array of different kinds of conduct including how competitors should allocate personal protective equipment between medical facilities and how shopping centres can provide rental relief to tenants.
A majority of applications (21) were made in response to government or regulator calls for a co-ordinated response from industries to help stakeholders that were the worst affected by the pandemic, such as patients seeking healthcare, hospitals seeking medical equipment and vulnerable consumers and businesses financially hit by the pandemic.
The graph below shows the industries in which the 32 applicants operate. Unsurprisingly, the healthcare, medical equipment and pharmaceuticals industries are most represented, although 8 of the 13 applications in that sector were substantially similar applications lodged by the State and Territory health departments. Those applications were lodged to enable applicants to implement the integration of their private and public hospital systems following the Federal Government’s private hospital viability guarantee in return for capacity during the COVID-19 response.
NB: (W) indicates 1 application was subsequently withdrawn
The ACCC’s response to the bulk of applications has been to grant interim authorisation, and to do so very quickly. The ACCC granted interim authorisation for all but two of the applications, both of which were withdrawn. One of those withdrawn was by Virgin Australia (which entered into voluntary administration on 21 April 2020). Virgin’s application was the only application which did not receive interim authorisation before progressing onto substantive assessment for final authorisation. Of the 30 interim authorisations, 27 were granted in less than a week, 13 of which were impressively turned around within two days.
The graph below illustrates the number of days between the receipt of an application and the granting of interim authorisation by the ACCC.
Having responded to the initial burst of applications by granting interim authorisations, the ACCC has since completed its formal review and made final determinations in respect of two applications. The ACCC granted authorisation to Suncorp, Allianz, QBE and other insurers and brokers on 9 July, as well as to the Financial Services Council (FSC) and its member life insurance companies (with conditions) on 16 July. The authorisations will come into effect three weeks later if no application for review of the determination is made to the Australian Competition Tribunal.
The number of authorisation applications has provided an important insight into the way that the ACCC assesses public benefits. Notably, in granting interim authorisations on an interim basis, the ACCC did not outright reject any arguments which parties raised as to the likely net public benefit of conduct which they proposed to engage in.
Applicants raised several arguments in support of the net public benefit of proposed conduct which the ACCC consistently accepted.
First, the ACCC placed much weight on the temporary nature of the arrangements— i.e. that long-term competitive dynamics would not be altered and markets would return to their “normal” state once COVID-19 passes. In that regard, several parties volunteered in their application that they would stop engaging in the proposed conduct before the end of the authorised period if the situation were to recover to a point where it is no longer required.
Similarly, the fact that conduct was expressed to be voluntary also appeared to mitigate potential anti-competitive detriment in the ACCC’s eyes. This meant that the authorisations did not foreclose the possibility that parties would engage in separate or additional conduct aimed at responding to COVID-19—for example, retail banks were able to provide financial relief to customers which was greater than that the subject of their authorisation application.
Finally, arguments which highlighted that the conduct would not lead to agreements on price and that the information shared and agreements implemented would be limited to a set purpose, for example to provide rental relief to small/medium enterprise tenants, were also endorsed by the ACCC as mitigating potential anti-competitive detriment.
The ACCC’s statements on public benefit will be of continuing interest once normal economic conditions return for those seeking relief that is subject to the weighing of public benefit and detriments, and as the ACCC moves to final determinations.
Interestingly, some entities withdrew their applications after the ACCC granted interim authorisation. Scentre Group and the Shopping Centre Council of Australia, the Australian Banking Association and the Australian Constructors Association each withdrew applications on the basis that the conditions which had justified urgent interim authorisation no longer existed either because of effective government policy intervention or favourable regulatory changes.
Authorisations subject to and monitoring conditions
In more than 80% of the interim authorisations granted, the ACCC required the parties to comply with notification and/or reporting conditions ranging from a requirement to provide fortnightly reports on material developments to a requirement to notify the ACCC of future parties wishing to engage in the relevant conduct. The ACCC considers that notification and/or reporting conditions reduce the risk that parties will act outside the confines of the authorisation.
The ACCC can also revoke an interim authorisation (or impose stricter conditions) if the reasons for granting an interim authorisation change. To date, the ACCC has revoked two COVID-19 related interim authorisations and replaced them with interim authorisations that narrowed the scope of the authorised conduct or imposed stricter reporting conditions.
The future of COVID-19 related authorisations
The ACCC’s efficiency and pragmatic approach in granting interim authorisations has been crucial to industries being able to meet customers’ and patients’ important needs during this unprecedented time. It has also helped some industries to struggle through and service the economic pain of the pandemic.
However, going forward as and when the economic and health situation improves, the ACCC will need to reassess whether authorisations are still warranted. It has indicated that it will revoke interim authorisations when the impact of the pandemic subsides to the point that the authorised conduct is no longer required.
Deciding when that point has been reached—and ensuring that parties don’t receive any unnecessary advantage beyond it—will be a careful balancing act. The ACCC will have all hands on deck to ensure that the co-operative winds in applicants’ sails is no greater than is necessary to weather the storm of COVID-19.