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Chapter 15 - Competition law. At the end of this chapter you should understand: the background to the passing of the Competition and Consumer Act 2010 (Cwlth) (CCA) and identify those responsible for its administration, the aims of the CCA, the definition of the terms ‘market’ and ‘competition’,...
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Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev 2-1 Restrictive trade practices Chapter 15 Copyright â 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-2 Learning objectives At the end of this chapter you should understand: • the background to the passing of the Competition and Consumer Act 2010 (Cwlth) (CCA) and identify those responsible for its administration • the aims of the CCA • the definition of the terms ‘market’ and ‘competition’ • the restrictive trade practices prohibited by the CCA • process of authorisation and notification under the CCA • the roles of the Australian Competition and Consumer Commission, the Australian Competition Tribunal and the Federal Court of Australia • enforcement procedures and the remedies available under the CCA Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-3 Introduction • Some restrictive trade practices are prohibited by the Competition and Consumer Act 2010 (Cwlth) • If businesses are found to have engaged in this type of anticompetitive conduct, the CCA provides for penalties and remedies for the infringement Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-4 Objectives of Competition and Consumer Act 2010 (Cwlth) • To improve industry efficiency • To promote competition in the market • To provide consumer protection Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-5 Administration of the legislation • Australian Competition and Consumer Commission (ACCC) – Responsible for bringing proceedings for contravention of restrictive trade practices provisions – Grants authorisations, permitting conduct that might otherwise be in breach of the CCA – Research, public information and guidance role Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-6 Concepts of ‘market’ and ‘competition’ • Market Includes all sellers competing for the same buyers • Competition A mechanism that ensures consumer needs are provided at the cheapest costs by businesses through control of the use of society’s resources Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-7 Cartel conduct prohibited— S44ZZRA-RV • A cartel exists where two or more businesses which should be operating in competition with each other agree to cooperate rather than act independently • Prohibited cartel conduct includes: – price fixing – restricting outputs in the production and supply chain – allocating customers, suppliers or territories – bid or tender rigging • Breach requires intention to enter an agreement which contained a cartel provision and intention to give effect to that cartel provision be established Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-8 Penalties for cartel conduct • If an individual breaches the criminal cartel provisions, they face imprisonment for up to 10 years and/or fines of up to $220 000 • For a civil contravention, individuals may be liable to a fine of up to $500 000 • For a corporation, a fine or monetary penalty for each contravention of a cartel offence or civil penalty provision will not exceed the greater of: – $10 million – three times the value of the benefit to the entire cartel – when the benefit cannot be determined, 10% of the corporate group’s annual turnover in the 12-month period when the offence occurred Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-9 Restrictive trade practices: CCA Sections 45–50A Part IV • Section 45: contracts, arrangements or understandings restricting dealings or substantially reducing competition • Section 46: misuse of market power • Section 47: exclusive dealing • Section 48: resale price maintenance • Section 50: mergers which substantially reduce competition Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-10 Section 45D: secondary boycotts • When two parties engage in conduct that hinders or prevents a third party from supplying, acquiring or from otherwise dealing with another party • If it causes substantial loss or damage, lessening competition Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-14 Section 46: misuse of market power • Prohibits corporations with a substantial degree of market power from taking advantage of that power to: – eliminate or damage a competitor in that market – prevent a competitor from entering that or any other market – deter someone from being competitive in that or any other market • Section 46 (1AA) refers to predatory pricing as prohibited conduct Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-15 Misuse of market power (cont.) • Section 46(6A) lists four factors that will assist the court in deciding if a person has ‘taken advantage’ of its substantial market power: – Was the conduct materially facilitated by the person’s substantial degree of market power? – Did the person engage in the conduct in reliance on its substantial degree of power in the market? – Is it likely that the person would have engaged in the conduct if it did not have a substantial degree of power in the market? – Is the conduct otherwise related to the person’s substantial degree of power in the market? • No authorisation is available for this conduct Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-16 Elements affecting market power • The ability of a firm to raise prices without losing customers • The firm’s conduct in the market is not affected by competitors • Market share of the firm • Existence of vertical integration • Extent to which new participants can enter the market Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-17 Section 47: exclusive dealing • Prohibits a supplier from imposing restrictions on the freedom of its customers to deal with others, and vice versa, if substantially lessening competition • This section is concerned with ‘vertical’ restraints • Note that the conduct is only prohibited if it has the effect of substantially lessening competition in a market for goods or services • Notification and authorisation are available Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-18 Exclusive dealing—prohibited conduct • Supplying goods and services on the condition that: – the purchaser does not acquire goods or services from a competitor of the supplier – the purchaser accepts restrictions on the right to resupply goods – the purchaser acquires other goods or services from a third party • Acquiring goods or services on condition that the supplier accepts some restriction as to the freedom to supply to third parties Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-19 Exclusive dealing—prohibited conduct (cont.) • Refusing to supply goods or services because the purchaser: – has dealt or refused to cease dealing in a competitor’s products – has failed to accept some restriction on the right of resupply – refuses to acquire other goods or services from a third party • Refusing to acquire goods or services because the supplier refuses to accept some restriction on the right to supply third parties • Aiding and abetting, procuring, counselling or inducing any corporation to engage in any of the conduct cited above Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-20 Section 48: resale price maintenance (vertical price fixing) • Prohibits a supplier of goods and services from stipulating the minimum price at which goods to be supplied by them can be resold • Sections 96–100: relevant qualifications and definitions required for s 48 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-21 Section 50: mergers • Prohibits mergers and acquisitions if likely to substantially lessen competition in a market in an Australian state or territory • Informal or formal clearance of a proposed merger may be obtained from the ACCC if the ACCC is satisfied that the merger or acquisition would not have the effect of substantially lessening competition in a market—onus is on the applicant • If the merger will substantially reduce competition and so breach s 50, authorisation may only be granted by the Australian Competition Tribunal on public benefit grounds Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-22 Matters to be considered for mergers • The actual and potential level of import competition in the market • Barriers to entry into the market • The level of concentration in the market • The extent to which substitutes are, or are likely to be, available • The degree of countervailing power in the market • The likelihood that the acquisition would result in the acquirer being able to significantly and substantially increase profits or profit margins Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-23 Section 50A: acquisition outside Australia • Prohibits entity gaining dominance of an Australian company through acquisition of overseas interests Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-24 Exceptions to restrictive trade practices provisions • Section 51 provides a number of exemptions to the prohibitions above, including: – Conduct authorised by legislation – Industrial agreements covering working conditions – Restrictive provisions in employment contracts – Contracts requiring compliance with prescribed standards – Partnership agreements – Arrangements relating to copyright or patterns – Provisions in a contract for the sale of a business to protect the goodwill of the business Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-25 Authorisations (except for Section 46: misuse of power) Sections 88–91: for conduct that may breach provisions, allowed if agreement will result in a benefit to the public that outweighs anticompetitive behaviour Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-26 Notifications • Notify commission that s 47 (exclusive dealing) is to be infringed before authorisation that eliminates any liability that may result for contravention of section • If disallowed after consideration, action must stop immediately or penalties will be imposed Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-27 Remedies and enforcement of Part IV • Pecuniary penalties: – fines of up to $500 000 for natural persons – maximum penalty for corporations is the greater of $10 million or times the gain from the breach, or if the gain cannot be calculated 10% of the corporation’s turnover – fines of up to $750 000 for corporations who breach any of ss 45D, 45DB, 45E or 45EA) • Adverse publicity orders • Injunctions (s 80) • Divestiture orders (s 81) • Damages (s 82) Ancillary orders (s 87) Copyright â 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev •2-28 ... practices Chapter 15 Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev • 2-2 Learning objectives At the end of this chapter you... the sale of a business to protect the goodwill of the business Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev • 2-2 5 Authorisations... costs by businesses through control of the use of society’s resources Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Barron, Fundamentals of Business Law 7Rev • 2-7 Cartel