Amendments to Australian Antitrust Regime Take Effect

Amendments to Australian Antitrust Regime Take Effect

In Short

The Situation: Australia has adopted a package of changes to its antitrust laws that are designed to give more power to its antitrust enforcement agency, the Australian Competition and Consumer Commission, and to increase private antitrust litigation.

Looking Ahead: Companies that are involved in the exchange of competitive information or that could be accused of having a substantial degree of market power should quickly review their practices in light of the new laws.

On November 10, 2017, Australia adopted a package of changes to its antitrust laws that enhance the Australian Competition and Consumer Commission's ("ACCC") power and increase exposures to private litigation.

The key changes concern:

  • A stricter "misuse of market power" prohibition that removes the "taking advantage" element of the prohibition and enables competition effects cases to be made;
  • The introduction of prohibitions applying to "concerted practices" even where there is no "agreement, arrangement or understanding", which is especially relevant to the exchange of confidential information; and
  • Removing the ability for merging parties to "forum shop" between the ACCC and Australian Competition Tribunal ("ACT") for clearance.

Companies should urgently review their practices if:

  • They are involved in any exchanges of competitively sensitive information with competitors; or
  • They could be accused of having a substantial degree of market power and have "pushed the envelope" of what conduct can be legally undertaken in Australia.

Misuse of Market Power (aka Single Firm Monopolization)

Old Rule: Misuse of market power cases used to be very rarely taken, and liability was found even more rarely  for two reasons. The ACCC (or private plaintiff) had to prove that the defendant:

  1. was in possession of a substantial degree of market power and "took advantage" of market power—i.e. that the firm had engaged in conduct it would not have undertaken if it lacked market power and was operating in response to competition. To escape liability, a defendant could scour the world to find an example of a firm that was clearly nondominant that engaged in the same conduct (as occurred in a case called Melway); or
  2. had one of three specific anticompetitive purposes. The effect of the conduct was not directly relevant to liability. In effect, this required a "smoking gun" intent email or a concession by the accused. Well-counselled Australian companies regularly avoided liability by never recording an anticompetitive purpose, and for a plaintiff seeking to prove a case solely on oral concessions, this was impractical.

New Rule: The new rule is that a person with a significant degree of market power must not engage in any conduct that has the purpose or effect of substantially lessening competition.

By adopting an "effects" standard and removing the "taking advantage" requirement, Australia moves closer to the general standards applying internationally. Note, however, that an important remnant of the old rule remains—liability can exist based on the "purpose" of conduct (i.e. a smoking gun) even if there is no evidence of the anticompetitive effects the conduct will have.

Key Point: Many firms have structured their distribution systems and other business affairs based on exculpatory evidence that the conduct in question would not fall foul of the "taking advantage" or "purpose" elements required by the old rule. These firms must urgently review and potentially reform their conduct.

Concerted Practices

Old Rule: There are a multitude of Australian prohibitions against different forms of coordinated anticompetitive conduct, and these used to require the ACCC (or a private plaintiff) to prove that there was an "contract, arrangement or understanding" between two entities. It was not sufficient to prove a mere "concerted practice".

The term "concerted practice" is used in Europe, most of Asia and many other parts of the world. It means to engage in:

Co-ordination between entities which, without having reached the stage of concluding a formal agreement, have knowingly substituted practical co-operation for the risks of competition.

As a result, the ACCC lost cartel prosecutions where it could only show repeated disclosures of confidential information by some competitors to others without being able to show that the recipients of the information had entered into any form of understanding to alter their behavior in response.

New Rule: The various prohibitions against coordinated conduct have been amended so that the ACCC or a plaintiff can base their suit on a "concerted practice" without having to prove "contract, arrangement or understanding".

The Australian legislature made the change in response to ACCC lobbying which suggested that this would bring Australia's law into line with that applying in Europe and Asia and thereby solve the ACCC's problems where information is exchanged without a "contract, arrangement or understanding".

The contention that the change brings Australian law into alignment with European and Asian competition laws is erroneous because of another important difference between European and Asian competition laws on the one hand and Australian competition law on the other. In Europe and Asia, the language of the prohibition is expressed as follows:

The following shall be prohibited…: all agreements … and concerted practices … which have as their object or effect the prevention, restriction or distortion of competition.

In Europe, the courts have decided that in general, disclosures of confidential information by one competitor to another where the recipient does not take active steps to reject the information is sufficient to constitute a "concerted practice" "by object".

In Australia, the ACCC (or private plaintiff) will still have to prove that any concerted practice had the "purpose or effect" of either "fixing, controlling or maintaining prices" or "substantially lessening competition". In competitively sensitive information-sharing cases, the ACCC has not generally sought to prosecute on the "effects" standard, so only the "purpose" standard was relevant. Proving purpose would usually require proof of intent, which is analogous to having to prove a "meeting of the minds", albeit that there would not need to be a shared intent.

Key Point: Any arrangements concerning information exchange of any nature between competitors should be reviewed.

Abolition of Forum Shopping for Merger Clearances

Old System: Australia has long provided an option for merging parties between two statutory standards for merger clearances. The standard rule provides that a merger is prohibited if it has the effect of substantially lessening competition. However, there has been an alternative by which a merger can be approved if it results in such benefit to the public as to outweigh any competitive detriment.

For most of the last 40 years, the ACCC has undertaken the initial assessment under both tests either through the formal or informal clearance process (for the SLC test) or the authorization process (for the net public benefit test). The courts and tribunals were only involved if the ACCC took enforcement action or if the merging parties appealed an ACCC decision.

However, for the last decade, any applications under the public benefit test were made directly to the ACT, which has generally required any complainant to meet a higher standard of proof than the ACCC does. For example, the ACCC opposed the merger of Australia's main retail sports betting businesses, Tabcorp and Tatts, in 2006 and again in 2017, but the ACT approved the merger.

New System: The new law restores the pre-2006 system whereby any application for a merger to be approved on public benefit grounds must first be made to the ACCC, not the ACT.

Other Amendments

The new law will essentially remove the specific Australian blanket prohibition against "third line forcing", permitting firms to engage in such conduct if they are confident that the conduct will not have the purpose or effect of significantly lessening competition. It will no longer be necessary to approach the ACCC for an exemption.

Although resale price maintenance will remain per se illegal, a more streamlined exemption process known as "notification" will be available rather than full-blown "authorization" for companies wishing to engage in the conduct. This effectively means that the ACCC will have to take active steps to disallow an exemption on the basis of public benefit concerns rather than the applicant having to prove that the resale price maintenance is of net public benefit.

The new law permits the ACCC to make class exemptions equivalent to the European and Asian "block exemption" concept, although whether this mechanism will ever be used is an open question.

The law also amends other aspects of the competition law, such closing a loop-hole that enabled certain "buy side" cartels to avoid prohibitions and seeking to better align the legal drafting for the joint venture exception from the cartel provisions with the original legislative intent.

Three Key Takeaways

  1. Misuse of market power cases may now be brought by the ACCC or plaintiffs alleging conduct that has either the purpose or effect of substantially lessening competition.
  2. Firms should review any practices that involve sharing information with competitors, although Australia's rules regarding "concerted practice" cases still differ from the rules in much of Europe and Asia.
  3. Any application for a merger to be approved on public benefit grounds must now first be made to the ACCC, not the ACT.
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