Upcoming Mallesons seminarsThe New Rapid Response Powers of the ACCC under Part XIB (competition notices) of the Trade Practices Act 1974.
K E Y P O I N T S
- Important amendments have been made to the competition notice provisions in Part XIB of the Trade Practices Act
- Has the power given to the ACCC gone too far to prejudice legitimate commercial conduct?
Introduction
The Government has enacted new amendments to the Trade Practices Act which substantially change the competition regime governing telecommunications in Australia. These amendments have led to the regime moving further away from general competition law and national competition policy principles. Although it has been said the amendments involve only minor tinkering with the competition notice regime, the amendments do away with some of the checks and balances built in to the previous regime, diminish the rights of incumbent players in the telecommunications industry in important ways and give wide discretionary powers to the ACCC.
Summary of changes
On 5 July 1999, the Telecommunications Legislation Amendment Act 1999 (Cth) (‘Amendments’) received royal assent. The Amendments were part of the package of telecommunications-related legislation linked to a further sale of the Commonwealth’s holding in Telstra Corporation Limited. The key elements of the Amendments are:
- amendments to the competition notice regime under Part XIB
- new ACCC powers to broaden the scope of the record keeping rules under Part XIB
- wider ACCC powers in relation to telecommunications access under Part XIC, and
- amendments to various carrier information requirements.
This article only deals with the competition notice amendments.
Competition notice amendments New two-part notice regime
The Amendments introduce a number of changes to the workings of the competition notice regime. Under the old regime, a competition notice performed a dual role – its practical effect was intended to be similar to a ‘cease and desist’ order. That is because it exposed the recipient to enforcement proceedings and the risk of very high penalties if the recipient continued to engage in conduct specified in the notice.
The notice would also become prima facie evidence of the matters in it in any subsequent enforcement proceedings. That dual role has now been split. Now, the ACCC may issue a ‘Part A’ notice where it has reason to believe there may be a contravention of the competition rule. Once a Part A notice comes into force, the recipient of the notice is exposed to enforcement proceedings. Importantly, the ACCC may issue two types of Part A notices. A Part A Type 1 notice may describe a ‘specified instance of anti-competitive conduct’ and a Part A Type 2 notice may specify a general ‘kind of anti-competitive conduct’.
The Type 2 notice may represent a significant expansion of the ACCC’s powers compared with the old competition notice regime. The very high penalties (up to $10 million and $1 million each day under the Trade Practices Act for each contravention), mean that the competition notice is intended to limit a carrier’s exposure to litigation by permitting proceedings only where the ACCC considers there is a breach of the Trade Practices Act and only in respect of specific conduct described in a notice. However, now that a notice may contain descriptions of a general kind of anti-competitive conduct, this important gatekeeper role may have been substantially diminished. Arguably, this is not good policy because the gatekeeper role is important to avoid a regime in which the threat of litigation might deter rather than promote competition.
The Part B notice is an optional notice. The sole function of a Part B notice is for it to be prima facie evidence in any subsequent enforcement proceedings. The difference compared with the previous regime is that a Part B notice may now be issued even after enforcement proceedings have begun. This is important as it may allow the ACCC (or an interested third party) a procedural advantage in any enforcement proceedings because the ACCC can continue to refine its allegations and issue a notice for evidential purposes, even whilst enforcement proceedings are on foot.
Lower threshold for the issue of a competition notice
Under the old regime, the ACCC considered that it had to be ‘affirmatively satisfied’ that conduct was in fact anti-competitive and in breach of the Trade Practices Act before it could issue a competition notice.
Under the new amendments, all the ACCC requires is a reason to believe that the recipient of a notice is engaging in anti-competitive conduct. This standard is a real watering down and provides little check on the circumstances in which the ACCC may decide to issue a notice. Given the very important consequences which flow from issuing a competition notice, this standard would appear to be inappropriate. This low standard raises the risk that the ACCC could act with imperfect information.
This is questionable economic policy. In economic terms, falsely condemning competitive conduct is worse than falsely allowing anti-competitive conduct. Economic principles suggest that monopolistic practices will eventually yield to competition because such practices are not perfect, and higher prices will eventually attract rivals. However, a false regulatory condemnation of beneficial conduct may have permanent effects, and impose losses over the whole range of output.
New broader competition rule
Although the ‘effects-based’ test of anti-competitive conduct under the previous regime was itself an undesirable expansion of the purpose based prohibition on misuse of market power in section 46 of the Trade Practices Act, the Amendments expand the definition of anti-competitive conduct even further. The circumstances in which a carrier engages in anti-competitive conduct are extended to include a situation in which a carrier with a substantial degree of market power:
- takes advantage of that power and
- engages in other conduct on one or more occasions with the combined effect, or likely combined effect, of substantially lessening competition.
It appears that the ‘other conduct’ need not itself be a use of market power and could include a range of conduct unrelated to any loss actually suffered. Again, this approach has questionable economic support. A test for anti-competitive conduct must be able to distinguish hard, socially-beneficial competitive conduct from predatory, monopolistic and socially harmful conduct. This test does not do that. Now that all conduct by a monopolist is relevant, too much depends on the effect on competition. However, the effect of conduct on competition is frequently ambiguous and often very hard to determine. The new standard provides little guidance to carriers who may possess market power and may generate significant uncertainty. This uncertainty in itself has the potential to deter much legitimate and desirable pro-competitive conduct.
Other amendments to the competition notice regime
There are a number of other amendments to Part XIB. In summary, these include:
- a new power for the ACCC to issue an advisory notice (if a Part A notice is in force) advising the carrier of actions it can take to avoid engaging in the kind of conduct dealt with in a Part A notice. Despite its optional nature, the practical effect of an advisory notice may be significant, given the potential breadth and ambiguity of Part A notices
- third parties can now seek injunctive relief for contravention of the competition rule even if the ACCC has not issued a competition notice
- the ACCC may make minor variations to competition notices which are already in force, and
- a Court may not stay the operation of a competition notice in any challenge to the validity of the notice.
Conclusion
The Amendments represent a very serious intrusion on economic freedoms. Of course, much of the impact of the Amendments depends upon the way in which the ACCC decides to exercise its new powers. It is hoped that in interpreting some of the more ambiguous powers given to it, the ACCC does not depart from the sound principles of trade practices law established over the last 25 years.
Beau Buffier
Mallesons Stephen Jaques
Mallesons Stephen Jaques does some legal work for Telstra Corporation Limited.