Competition law has assumed a high profile in the business community due in part to multi-million dollar prosecutions and the proposed introduction of jail terms for more serious offences.  As a service to your business, this article provides an introductory insight into some basic aspects of the competition law provisions of the Trade Practices Act.

The purpose of competition law

The purpose of competition law is to promote a competitive marketplace for the benefit of Australian consumers. 

A competitive marketplace involves winners and losers. Some organisations won’t survive in a competitive marketplace.

Competition law accepts that but sets out the rules, including rules of fair play, which must be adhered to.  Examples of those rules are included below.

The role of the ACCC

The Australian Competition and Consumer Commission (the ACCC) is the regulator responsible for policing compliance with the Trade Practices Act (“the Act”).

Prohibitions in the competition law provisions of the Act

There are essentially two types of prohibitions:

• outright prohibitions: there are some types of conduct which are prohibited outright.  For example, price fixing arrangements between competitors;
• qualified prohibitions: there are other types of conduct which are only prohibited if they have the purpose or effect of substantially lessening competition in a market. For example, there is a prohibition on mergers and acquisitions which will have the effect or likely effect of substantially lessening competition in a market.

Many of the prohibitions are subject to exceptions. For example, the prohibition on price fixing arrangements between competitors has an exception in some circumstances for joint ventures.

Also, where some of the prohibitions are concerned, there are procedures available whereby the ACCC can, in effect, sanction proposed conduct which would otherwise, or which might otherwise, breach the prohibition. Where sanction is available, and is sought, the Act prescribes the tests to be applied by the ACCC in deciding whether to provide the sanction. 

Am I immune from competition law if I’m not a big player in my market?

It’s not only the big players who are exposed to competition law. For example, a price fixing agreement between two small competitors may breach competition law.

The importance of the concept of a “market” in competition law

As indicated above, the prohibitions in competition law include prohibitions on certain types of conduct if that conduct has the purpose or effect of substantially lessening competition in a “market”.   That makes the concept of a “market” of fundamental importance where those particular prohibitions are concerned as the effect that conduct will have on competition in a market will generally depend on how widely / narrowly the relevant market is defined.

Defining a market for competition law purposes

Competition law takes the following into account in defining a market:

• the products/services which make up the market. Only products/services which are “close substitutes” are taken to occupy the same market for competition law purposes. Products/services may be alternatives (e.g. tea/coffee) without necessarily qualifying as close substitutes. In Arnott’s case, for example, the court had to determine whether the product market in which biscuits competed was best defined as a market for biscuits alone or, alternatively, as a market for snack foods generally. It chose the narrower market (i.e. biscuits).
• the geographical area of the market.  For example, the geographical area of the market in which a bottle shop competes might be limited to a few suburbs whereas the geographical area of the market in which a motor vehicle manufacturer competes might be the whole of Australia;
• the functional level of the market.  For example, the manufacturing, distribution, wholesale or retail level.
• the time component.  Products and services can leave and enter a market over time. This is taken into account to some extent in defining a market.

You should not assume that your definition of the markets in which you compete will necessarily accord with the ACCC’s definition of those markets. Competition law cases often revolve around a dispute over market identification and definition.

Penalties for breach of competition laws

The maximum penalties for breach of competition laws by a corporation include multi-million dollar fines.

Penalties of up to $500,000 apply to individuals (e.g. company officers) involved in a breach of competition laws. The Rudd government intends to introduce jail terms for the more serious offences.

The benefits of a competition law compliance program for an organisation

Competition law is complex and therefore unintended breaches do occur at times. A compliance program implemented with the assistance of appropriate professionals will help avoid an unintended breach of competition law.

Also, if a breach of competition law does occur, both the ACCC and the court (if the matter reaches the courts) will take into  account the quality of any compliance program that was in place at the time of the breach in considering what penalty, if any, is warranted.

Contact the MacDonnells Law Trade Practices team listed below for advice on trade practices matters.

Chris Taylor |  Special Counsel
Brisbane

Melinda Foley  |  Partner
Cairns

This newsletter is intended only to provide general information about current legal issues and does not constitute, nor should it be used or treated as, professional or legal advice.  Readers should make their own enquiries or seek legal advice before making any decisions concerning their own interests.