Shifting to an ‘effects based’ test
The most significant proposal is changing section 36 to an ‘effects based’ test. Under the current law, proving or defending an alleged breach of section 36 is an extremely costly and complex exercise. Section 36 has two requirements. The ‘take advantage’ requirement requires the courts to conduct a counterfactual test that is very difficult for a plaintiff to prove. This means, regardless of a case’s merits, it is extremely difficult for a plaintiff to win a section 36 case at present. In addition, the current ‘purpose’ requirement focuses on the purposes of alleged anti-competitive behaviour, regardless of its actual effects.
The change to an effects based test will place more focus on activities that actually lessen competition, or are likely to lessen competition, rather than how much market power a firm has and whether it is acting deliberately for an anticompetitive purpose. Under the proposed law, a firm with substantial market power will be liable if its actions have the effect, or are likely to have the effect, of substantially lessening competition in the market.
This will bring New Zealand more closely in line with Australian competition law. MBIE notes New Zealand is currently the only country in the world that requires a strict causal connection between a firm’s market power and the conduct in question.
Removing intellectual property exceptions
The Commerce Act contains three provisions that restrict the application of the Act to certain conduct relating to intellectual property (such as copyright, trademarks or patents). The scope of these provisions is currently unclear and they are yet to be tested in the courts. They potentially mean a firm is not prevented from acting anti-competitively in relation to its IP (such as by imposing conditions on the use of its IP or refusing to license its IP at all).
MBIE is proposing repealing these exceptions, again following Australia’s lead. This may mean forbidding IP owners from exercising some of their rights, if the exercise would be anti-competitive.
What do these changes mean for your business?
As a small and remote market, New Zealand is susceptible to anticompetitive behaviour.
The proposed changes will have substantial ramifications not only for market leading firms, but also for smaller players seeking to snub out anti-competitive behaviour. New entrants may find it easier to enter markets and develop new businesses, the ministry says.
Firms will regularly have to assess whether their actions will have the effect of substantially lessening competition in the market. At the moment, except in the case of agreements between parties, only conduct with the purpose of substantially lessening competition is proscribed. The shift to an ‘effects based’ provision will lead to a great deal of uncertainty.
The Commerce Commission currently has the power to grant authorisations for practices that would or might otherwise breach certain sections of the Act if the Commission is satisfied that the practice would result in public benefits that outweigh the potential harm to competition. The proposed changes would extend this power to section 36. This would allow firms who have concerns about their exposure under the proposed change to apply for an authorisation.
While MBIE suggests concerns about the practical difficulties an amendment would create are overblown, if enacted, the changes will have a significant impact on the market. There will be immediate one-off transition costs as businesses become acquainted with new law and navigate the initial uncertainty about the law. This is where sound legal advice will be essential.
Submissions are open until 1 April 2019. If you are concerned about the effect of the changes on your business, or want to make sure you have a say on if and how they are enacted, please contact us.