Harper Reforms cross the Tasman Sea – NZ announces major reforms to competition laws
Following almost half a decade of consultation, the New Zealand Government has announced a range of major reforms to NZ’s competition laws, including a relatively controversial proposal to introduce an “effects test” for abuse of dominance and remove various intellectual property exemptions from the Commerce Act 1986.
In pushing for these amendments to the Commerce Act, the NZ Government will be following in the footsteps of Australia, which implemented similar reforms after the Harper Panel’s Competition Policy Review. While the reforms will go some way to promote greater harmonisation with Australia’s competition laws, they generated significant debate in Australia when they first floated. It will be interesting to see how the debate unfolds in NZ, and whether similar concerns will be raised when the proposed Bill to implement these reforms is introduced in Parliament next year.
Significant reforms to NZ’s abuse of dominance prohibition
Arguably the most significant reform is the proposed amendment to the abuse of dominance prohibition in NZ. If passed, it will follow Australia’s lead by introducing an “effects test” and removing the requirement for a business to take advantage of their market power to show an abuse of dominance.
Currently, section 36 of NZ’s Commerce Act prohibits firms with substantial market power from taking advantage of that power for the purpose of:
- restricting the entry of a person into that or any other market;
- preventing or deterring a person from engaging in competitive conduct in that or any other market; or
- eliminating a person from that or any other market.
The re-framed provision, if it passes through Parliament, will prohibit firms with a substantial degree of market power from engaging in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market.
Accordingly, the proposed amendments will:
- remove the requirement to show that the corporation has taken advantage of its substantial market power; and
- remove the “purpose” test and instead prohibit conduct that has the purpose, effect or likely effect of substantially lessening competition in a market. This means that conduct may breach the abuse of dominance prohibition on the basis of its effect (or likely effect) in a market, irrespective of its underlying purpose.
The amendments will also enable parties to seek authorisation from the New Zealand Commerce Commission (NZCC) for conduct that may contravene section 36, but is in the public interest.
These changes were adopted in Australia as part of the amendments to the misuse of market power prohibition proposed by the Harper Panel. This came into effect in November 2017, following many years of extensive consultation and debate.
If the experiences in Australia are anything to go by, we can expect that there will be heated debate around this proposal. This is particularly in relation to the “effects test”, where there were significant concerns that the amended prohibition would create legal uncertainty for businesses. We expect that many of the same concerns will also be raised in NZ. The Minister of Commerce and Consumer Affairs has foreshadowed this debate, noting that this proposal was “controversial amongst competition lawyers and large businesses that would be directly impacted by reform”.
If the reforms to section 36 are passed in New Zealand, we expect that section 46A of the CCA will be amended to reflect the “new” misuse of market power prohibition in Australia. Section 46A was not amended as part of the Harper Reforms, and currently prohibits a corporation that has a substantial degree of market power in a trans-Tasman market from taking advantage of that power for a prescribed purpose (i.e. the “old” misuse of market power test). Likewise, the NZ Government has indicated that it plans to align section 36A of the Commerce Act (which is broadly equivalent to section 46A of the CCA) with the “new” abuse of domiance prohibition, subject to consultation with the Australian Government.
Removing the exemptions relating to intellectual property
The NZ Government is also following the lead of Australia by proposing to repeal various exemptions that relate to intellectual property under the Commerce Act.
Subject to a transitional period, the proposed amendments will remove three provisions which currently govern how IP rights are treated under NZ competition law:
- Section 45, which provides a limited exemption for conduct that would otherwise breach the Commerce Act where it involves entering into, or giving effect to, a contract, arrangement or understanding that authorises any act that would otherwise be prohibited by a statutory IP right. This exemption does not extend to conduct that constitutes resale price maintenance or abuse of dominance.
- Section 36(3), which provides that a firm will not breach the abuse of dominance prohibition solely by enforcing an IP right.
- Section 7, which provides that the Commerce 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 the Commerce Act.
In Australia, the IP exemption was repealed from the CCA in September 2019, following extensive consultation and recommendations by the Harper Panel and the Productivity Commission.
Like in Australia, the repeal of the IP exemption is expected to generate significant debate, with the Minister of Commerce and Consumer Affairs acknowledging that the proposal to repeal these provisions is relatively controversial. To address the uncertainty associated with this reform, the NZ Government has indicated that it expects that the NZCC will publish guidance on its enforcement approach in relation to IP rights, and that this would ultimately be similar to guidance published by the ACCC.
Increased pecuniary penalties for anti-competitive acquisitions
The NZ Government has also announced that it will increase the maximum penalties that can be imposed on businesses for breaches of section 47 of the Commerce Act, which prohibits acquisitions of assets or shares that have the effect or likely effect of substantially lessening competition. While businesses can currently be fined a maximum of NZ$5 million for breaches of section 47, the amendments will increase the penalties that the Court can order so that they are aligned with the maximum pecuniary penalties available for other forms of anticompetitive conduct, being the greater of:
- NZ$10 million;
- three times the value of any commercial gain from the contravention; or
- if the commercial gain is unknown, 10% of the business’ turnover.
The NZ Government has also announced a suite of other matters that will be dealt with in the proposed amendments to the Commerce Act, including:
- technical amendments to the treatment of covenants (which the Government noted were “inadvertently excluded from the new [cartel] prohibitions”);
- amendments to clarify the treatment of land under the Commerce Act to ensure that anti-competitive conduct in relation to rights or interests in land is treated the same way as for other types of property;
- an increase in the maximum number of full Commissioners that can be appointed to the NZCC from six to eight; and
- amendments that will expressly allow the NZCC to share information that it holds with other domestic government agencies or regulators, subject to appropriate safeguards.
The NZ Government has announced that a Bill introducing the proposed amendments to the Commerce Act will be introduced in early 2021. It anticipates that the changes will come into force twelve months after the Bill receives Royal Assent.
If the experiences of Australia are anything to go by, we can expect that there will be significant debate over the next year about these proposals, especially since these amendments—if passed— will have a wide-reaching effect on businesses. However, the extent to which there will be extensive consultation about these reforms in NZ may be tempered by the fact that many of these issues have been ventilated in Australia as part of the Harper Review and the Government’s subsequent implementation of these amendments.
The upshot of these reforms for Australia is that they will facilitate greater harmonisation of our competition laws with those in force in NZ. The potential advantages of this were recognised in the Minister of Commerce and Consumer Affairs’ announcement, which noted that, in respect of the abuse of dominance reforms, “there is benefit in aligning New Zealand’s prohibition with Australia”.
At a practical level, there is a significant level of cooperation between the ACCC and NZCC in enforcing their respective competition laws. The agencies are able to share compulsorily acquired information and provide investigative assistance, and regularly discuss issues that arise in their review of anti-competitive mergers. This cooperation has become even closer in the last decade, with some ACCC Commissioners being cross-appointed to the NZCC (and vice versa).
If passed, these reforms will be another example of the close alignment of our competition laws with those in force across the Tasman Sea.