Wider restrictions on anti-competitive actions by major market players loom closer

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Stronger restrictions on the actions of companies with high levels of market power are coming closer and looking more and more likely.

On Tuesday 14 September, the Commerce Select Committee reported the Commerce Amendment Bill (Bill) back to Parliament, following submissions, with a recommendation that the Bill proceed. The Bill started its second reading on Wednesday 20 October. It is likely to be passed in coming weeks.

What are the key proposals in the Bill

The Bill proposes significant changes to section 36 of the Commerce Act 1986 (the Act), which currently prevents people with a substantial degree of market power from engaging in conduct for the purpose of substantially lessening competition in that market.

The proposed amendment to section 36 expands the scope of the prohibition to include behaviour which has the effect of substantially lessening competition in a market, as well as the current prohibition on behaviour that has the purpose of substantially lessening competition in a market. This is a significant and controversial change, that will make a much wider range of actions illegal.

A related change is to expand the Commission’s authorisation powers to allow the Commission to authorise actions that would otherwise breach section 36. At present under the Act, the Commission can authorise matters that would otherwise breach a list of particular sections of the Act where it is in the public interest to do so.

The Bill also seeks to repeal the intellectual property safe harbours contained in section 45. At present, the safe harbours make the entering of and giving effect to a contract, arrangement or understanding that contains a clause authorising an act that would otherwise breach a statutory intellectual property right, exempt from Part 2 of the Act. An example of such a clause would be a clause authorising a party to a contract to use a trade mark owned by another person.

The proposed repeal of the safe harbours would mean that such contracts, arrangements of arrangements will no longer be exempt from the provisions of the Commerce Act relating to substantial lessening of competition, cartel provisions, taking advantage of marketing of power and resale price maintenance.

What were the views on the Bill before Select Committee?

The proposed changes to section 36 and the intellectual property safe harbours received widespread comment in submissions to the Commerce Select Committee, some in favour and some opposed.

The New Zealand National Party members on the Committee included a minority comment in the Committee’s report on the Bill that they are concerned the “effect” condition in section 36 will discourage competition. They said that there is concern that market players may act conservatively to reduce the risk of engaging in activities that result in an unintended lessening of competition and be captured by the Act.

The National party members also said that they are concerned that removal of the IP safe harbours will make New Zealand an outlier internationally and discourage investment in IP.

Conversely, the Commerce Commission (Commission) has long awaited change. The Commission says the proposed new test under section 46 will not prevent dominant firms from improving their commercial position. Instead, it sees the change as protecting the competitive process by ensuring firms with substantial market power do not engage in exclusionary conduct.

MBIE, which did the consultation and policy work to support the Bill, states the change to section 36 will make New Zealand law consistent with the approach in other jurisdictions.

What did the Select Committee recommend?

The Economic Development, Science and Innovation Committee (Committee) released its report on the Bill on Tuesday 14 September. The report generally supports the proposed changes, stating the changes will “strengthen and clarify” the prohibition in section 36.

In addition, the Committee has suggested that the Bill further expand the Commission’s authorisation powers.

The first proposed extension is to allow the Commission to authorise agreements, arrangements and understandings that would otherwise breach the cartel prohibitions.

The second proposed extension to the authorisation powers is to incorporate a provisional authorisation power similar to the one that was set out in the now expired COVID-19 Response (Further Management Measures) Legislation Act 2020. The new proposed power allows the Commission to grant provisional authorisation for things that would otherwise contravene the Act but are time-sensitive, while an application for permanent authorisation is being considered (as per section 58 of the Act). The Committee believes the COVID-19 crisis highlighted where there may be a compelling public interest in such a power.

The Committee also suggested shortening the lead times for the Bill to come into force, once passed. The Committee believes the currently proposed lead times, which sit around 3 to 4 years, might allow people to engage in anti-competitive behaviours after the Bill receives royal assent, but before the provisions take effect. Shortening the lead times will restrict people from engaging in such activities to closer to one year. The Committee consider that this will still allow time for firms to adapt to the changes.  

Parliament will consider the proposed changes and whether to incorporate them in the Bill shortly. It is likely that Parliament will incorporate them in the Bill.

For more information please contact a member of our commercial or public law team.

Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

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