Transcript
Introduction
It is pleasure to be here representing the Australian Competition and Consumer Commission. The ACCC welcomes the opportunity to hear first-hand about how competition laws and policies are evolving in New Zealand and to share with you some of the things that are occupying us on the other side of the Tasman.
As many of you know the ACCC has several roles. We regulate infrastructure services and we monitor markets where there is limited competition. We enforce and encourage compliance with competition law. The ACCC is also the national body responsible for consumer protection. In other words, we cover everything from price fixing to product safety.
In keeping with the panel theme and my own role at the ACCC, today I would like to focus on the competition and consumer law side of things. I think we share a lot of common interests and issues in these areas. The four areas I will focus on are:
First, the cooperation between the ACCC and New Zealand Commerce Commission and some of the practical benefits in terms of investigations and merger reviews.
Second, I will provide an overview of the ACCC’s current enforcement priorities and activities, including the use of court enforceable undertakings as well as litigation.
Third, I will cover some significant merger reviews, including examples of how the same court enforceable undertakings are used by merger parties to resolve competition concerns.
Finally, I will say a few words about the authorisation process as it operates in Australia.
Cooperation
Cooperation between competition agencies is critically important – cartels and mergers are not confined by national boundaries and therefore competition agencies cannot be either. The ACCC cooperates with many other agencies on both a formal and informal basis – bilaterally, multilaterally and through the ICN and OECD.
Our cooperation is, however, closest with the NZCC. From enforcement investigations to merger reviews, the ACCC sees many benefits in working closely with our New Zealand counterparts. Collaboration between the agencies enables the pooling of knowledge and expertise across two experienced competition agencies, and allows each of us to refine our analysis and identify whether there are issues that are unique to our regions. This cooperation takes a number of forms.
Much of our cooperation is informal which occurs due to the trust and goodwill between the two agencies. We cooperate informally on such matters as the timing, scope and progress of investigations, leads on witnesses and how a particular case is being framed. Where possible, we also endeavour to coordinate the timing of interviewing key witnesses to avoid problems with limitation for action periods. In a mergers context we discuss matters such as market definition, theories of harm and potential remedies. We routinely obtain waivers from merger parties engaged in trans-Tasman mergers to enable us to share, and importantly discuss, confidential information. Waivers are also increasingly being employed in an enforcement context, e.g. in relation to immunity applicants.
We formally cooperate under the 2007 Cooperation Agreement between the ACCC and the NZCC. The agreement covers each agency’s competition, consumer protection and regulatory functions and provides for (among other things): notifications, mechanisms for cooperation and coordination of enforcement activities, meetings, the protection of confidential information and provision for staff exchanges. The Agreement provides the overarching structure under which protocols can be developed. The Mergers Protocol, agreed in August 2006, was the first to be attached to the agreement.
The ACCC and NZCC are also parties to tripartite agreements with the Canadian Competition Bureau, the UK Office of Fair Trading and the Taiwan Fair Trade Commission.
Australia and New Zealand also have specific legislation in relation to enforcement investigations and proceedings with a trans-Tasman element. For example, section 155A of the Competition and Consumer Act 2010 (CCA) provides the ACCC with the power to obtain information and documents in New Zealand relating to trans-Tasman markets and section 155B allows the ACCC to receive information and documents on behalf of the NZCC.
Amendments made in 2012 to New Zealand’s competition (and other) legislation, and a related cooperation agreement entered into between the NZCC and ACCC in April 2013, allows the NZCC to provide the ACCC with compulsorily acquired information and investigative assistance. The ACCC already possessed a similar power under section 155AAA of our Act, which provides for the disclosure of protected information to certain other agencies where the Chairman is satisfied that it will enable or assist in the performance or exercise of the agency’s functions or powers.
I am also pleased to say that the cross-commission appointments between the ACCC and the NZCC have been a great success. Back in December 2010, as a result of the Single Economic Market Outcomes Framework agreed the previous year, I was appointed as an Associate Commissioner at the NZCC and Mark Berry was appointed as an Associate Member of the ACCC. As far as I am aware, this is quite a unique experiment in cooperation between competition agencies around the world and one that has attracted a lot of interest from colleagues on the OECD Competition Committee.
The appointments have further enhanced cooperation between our agencies at the highest level, by providing for coordinated decision making, which helps to further cement operational cooperation. To date this has largely related to common merger reviews, but I think there is scope for the experiment to be extended into other areas of common interest and operations.
Compliance and Enforcement Priorities 2013
Following our annual strategic review, the ACCC released our updated Compliance and Enforcement Policy in February this year. The policy sets out the principles adopted by the ACCC to achieve compliance with the law. It also outlines our enforcement powers, functions, priorities and strategies.
The new edition of the policy emphasises that some forms of conduct are so detrimental to consumer welfare and the competitive process that the ACCC will always assess them as a priority, irrespective of the sector of the economy in which the activity occurs. These are:
- cartel conduct
- anti-competitive agreements
- misuse of market power, and
- product safety issues which have the potential to cause serious harm to consumers.
In addition to those matters that demonstrate the factors above, the ACCC is currently prioritising its work in the following areas:
- consumer protection in the telecommunications and energy sectors
- online competition and consumer issues including conduct which may impede emerging competition between online traders or limit the ability of small businesses to effectively compete online
- competition and consumer issues in highly concentrated sectors, in particular in the supermarket and fuel sectors
- credence claims, particularly those in the food industry with the potential to have a significant impact on consumers or the competitive process
- misleading carbon pricing representations
- the ACL consumer guarantees regime, and
- consumer protection issues impacting on Indigenous consumers.
I will just say a bit more about some current and recent activity in these priority areas.
Priority: Cartels
The ACCC has identified cartels as an enduring priority and a key component of our competition work. It is one of the core antitrust offences identified by agencies around the world, involving clear harm to competition, consumers and economic efficiency. The objective of deterring individuals and corporations from being involved in cartel conduct is the reason why we and other regulators take proceedings against cartelists each year.
After many years of building support, amendments criminalising cartel conduct came into force in Australia in July 2009, introducing the possibility of jail sentences of up to 10 years per offence.
We are yet to launch a criminal case, but our experience suggests that the threat of criminal sanctions is important. When combined with the ACCC’s immunity policy for cartel conduct, which offers immunity to the first to disclose and cooperate, there has never been a greater combination of deterrence and incentive to deter and break open cartels.
As we have heard, in May 2013 New Zealand’s Commerce Committee recommended that the Commerce (Cartels and other Matters) Bill be passed. The proposed reforms will introduce criminal penalties, including up to seven years in prison, for individuals found to have intentionally engaged in cartel conduct, defined to include price fixing, market allocation and output restriction arrangements between competitors. If passed, these reforms will provide further scope for convergence and cooperation between our agencies.
Since the launch of the cartel immunity policy in 2005, the ACCC has received 115 approaches, and this continues to be the lead source of information for cartel investigations and proceedings.
We are currently undertaking a review of the policy for the second time since its introduction. The purpose of the review is to see if there are ways to improve the policy’s effectiveness in detecting and deterring cartels.
In terms of where that process is, the ACCC is currently at the end of a phase of targeted consultation with lawyers and academics, to determine what the legal community had to say about the immunity policy, good and bad. We have also had informal discussions with some of our sister agencies in other jurisdictions to share our respective experiences in running an immunity policy. I will just mention some examples of where that targeted consultation exercise got us, and where our current thinking lies.
Firstly, we are looking at ways to bolster the exposure of the immunity policy to the general public. One suggestion that has been made is for the introduction of a “rewards for non-participant whistle-blowers” regime like the one that exists in the UK.
Secondly, we are looking at ways in which we could improve the administration of the immunity policy, in terms of the ACCC’s internal processes. For example, one procedure that we have recently implemented is to bring our investigators along to our initial meetings with the applicant, so that they are involved in the process from the “get-go”. We have found that this makes things go a lot faster and smoother in terms of handing over a matter from the immunity team to our investigation team.
Lastly, we are looking at ways that we could make our guidance material better and clearer. One example is the requirement that immunity applicants not have coerced others and not be the clear leader of the cartel. This criterion was designed so that the ACCC could refuse immunity to parties that are most culpable, and the way we assess that is whether a party has coerced others into participating in a cartel and is the clear leader of the cartel. The operative word here is “and”. The legal community told us that their interpretation is that if you have coerced others or were a clear leader, you are ineligible to seek immunity. Our intention is to provide as much certainty as we can to potential applicants so we were surprised at how different the general legal profession’s interpretation was to that of the ACCC.
We are currently putting together an issues paper that will set out the key issues that we think we need to address. This paper will be seeking comments from the wider community.
I will finish this section on cartels by listing some recent activities, starting with air cargo.
Air Cargo
We have recently concluded proceedings and are awaiting judgment against the two remaining airlines (incidentally, one being Air New Zealand) defending proceedings in relation to alleged cartel conduct in the transport of air freight. To date, the penalty figure for the 13 airlines to settle amounts to $98.5 million.
By many measures, this has been our biggest cartel investigation ever and sends a clear signal that we will continue investigations over the long haul to deter and punish conduct we believe to be illegal and harmful to competition and consumers.
Viscas Corporation
This year proceedings were also concluded against a Japanese cable supplier, Viscas Corporation, who was ordered to pay a penalty of $1.35 million in respect of bid rigging and price fixing conduct.
The penalty followed Viscas admitting that, in September 2003, it reached an anti-competitive arrangement with other Japanese and European suppliers of land cables in relation to an invitation to tender issued by Snowy Hydro Ltd. Proceedings in this matter are continuing against two other foreign companies, Prysmian Cavi e Sistemi Energia S.R.L, and Nexans SA.
Yazaki Corporation
Late last year we instituted proceedings in the Federal Court against Yazaki Corporation, a Japanese company, and its Australian subsidiary, Australian Arrow Pty Ltd.
The ACCC alleges that Yazaki and Australian Arrow engaged in cartel conduct, market sharing and price fixing, in relation to the supply of wire harnesses to Toyota Motor Corporation and its related entities in Australia.
Supagas
Last August, proceedings were instituted against Renegade Gas Pty Ltd (trading as Supagas NSW, a privately owned company), Speed-E-Gas (NSW) Pty Ltd (a wholly owned subsidiary of Origin Energy Limited) and various individuals.
The ACCC alleges that these companies gave effect to an anti-competitive cartel arrangement which included not supplying liquid petroleum gas (LPG) cylinders for forklifts to each other’s customers. These customers were both small and large scale businesses.
Koyo
Finally, our most recent cartel proceedings, instituted in July this year, relate to the supply of ball and roller bearings to aftermarket customers, for use in motor vehicles and industrial applications.
Priority: Misuse of market power
Much has been discussed about the difficulties in taking misuse of market power cases in Australia. In an economy where there are often smaller players at one end of the spectrum and very large players at the other, the level of interest is understandable.
The ACCC’s recent work in this area evidences our view that the misuse of market power, which undermines the competitive process and the benefits that brings for consumer welfare, will always be a priority. For us it is another core antitrust offence. Jonathan Baker characterised such exclusionary conduct as an “involuntary cartel” in a keynote paper presented at this conference two years ago.
That said, distinguishing anti-competitive from pro-competitive conduct is not always easy. There is a danger of both under and over enforcement here. Hence these matters tend to involve lengthy and resource intensive investigations and litigation and involve complex legal, economic and evidentiary issues. The ACCC currently has a number of ongoing investigations under s.46 of the CCA, which may or may not result in litigation and where we may or may not ultimately be successful.
Ticketek
The ACCC’s most recent judgment for misuse of market power was the Ticketek matter.
Ticketek is a ticketing company with a substantial share of the ticketing and related services market. Lasttix was a new entrant into that market who had built their model on promoting last minute discounted tickets to consumers.
We alleged, and the Court found, that on four separate occasions Ticketek had misused it’s market power with the anti-competitive purpose of deterring or preventing Lasttix from engaging in competitive conduct in the market. The conduct involved Ticketek refusing to implement, in its ticketing system, discounted price types to be published by Lasttix when requested to implement those price types by promoters or venue operators. In December 2011, Ticketek was ordered to pay pecuniary penalties totalling $2.5 million.
Visa Inc
The ACCC's ongoing commitment to s.46 cases has been demonstrated with the institution of proceedings against Visa Inc in February this year alleging that the operator of the world's largest retail electronic payments processing network misused its market power for the purposes of:
- preventing the expansion of Dynamic Currency Conversion (DCC) to additional merchant outlets in Australia, such as retail stores, and
- preventing businesses in Australia from supplying DCC services on ATMs in competition with Visa’s own currency conversion service.
DCC gives international card holders the choice of completing a transaction in their home currency or in the local currency of the retail store or ATM. If the cardholder chooses DCC, the exchange rate is locked in and disclosed to the cardholder at the time of making the transaction.
The alleged conduct by Visa gives rise to three concerns for the ACCC:
- First, it is alleged that travellers to Australia using a Visa payment card do not get to choose who does their currency conversion when withdrawing cash from an ATM. In particular, they are denied the ability to know the cost of transactions in their own currency at the time the transaction is made.
- Second, the ACCC alleges that Australian retailers were denied the opportunity to share in the revenue from processing DCC transactions at new merchant outlets.
- Finally, it is alleged that Australian suppliers of DCC services were, and continue to be, denied the opportunity to compete with Visa in relation to DCC services at ATMs.
The ACCC is concerned that Visa sought to stop the growth of competing Dynamic Currency Conversion services and, as a result, limit the choices available to consumers.
This was a big investigation and we expect it will be a significant court proceeding, being the first of its kind in the world.
Priority: Product safety
As an example of significant action in the product safety sphere, late last year the Federal Court imposed penalties by consent totalling $1 million against Cotton On Kids Pty Ltd in relation to its supply of unsafe children’s nightdresses and pyjamas.
The garments were labelled ‘low fire danger’ but in fact the nightwear was so flammable that they should not have been supplied in Australia at all. These breaches were very serious as they placed the safety of young children at risk. This case demonstrates that failure to comply with mandatory safety requirements can see a supplier end up in court and exposed to substantial penalties.
Priority: issues in highly concentrated sectors
As a specific area of focus, the ACCC has maintained reference to placing priority on competition and consumer issues arising in highly concentrated sectors, and in particular the supermarket and fuel sectors.
Supermarkets
In early 2012, following concerns voiced publicly about the conduct of the major supermarket chains, the ACCC sought information from supermarket suppliers regarding the way in which they were treated by supermarkets. A range of concerns were voiced and the ACCC sought information from the supermarkets regarding some of that conduct. Broadly speaking, the behaviour that has been raised with the ACCC involves allegations that:
- the supermarkets are acting unconscionably in their interactions with their suppliers; and
- the introduction of new private label products, and the way their roll out has been implemented, may be a case of misuse of market power.
The ACCC is looking closely at these allegations. However, considerable work will be required before deciding whether any action ought to be taken.
Shopper dockets
The ACCC is also looking into the competition implications of the trend to larger and longer fuel shopper docket offers. Shopper dockets are discount vouchers for fuel printed on supermarket receipts over a certain value. For many years the standard discount was 4c per litre but we have seen extended periods of 8c shopper dockets and most recently discounts of up to 45c.
The current investigation involves an assessment of whether Coles and/or Woolworths may be distorting price competition between fuel retailers by offering discounts on fuel purchased from their retail fuel sites in circumstances where, due to retail fuel margins, the discounts may be difficult or impossible for equally efficient competing retailers to match, due to the nature of Coles’ and Woolworths’ activities in other (unrelated) markets.
If sufficient customers are price sensitive and take advantage of the shopper docket offers by switching from other higher-priced retailers, then the effect of the arrangements may be to deny equally efficient competitors access to a sufficient customer base to be able to compete effectively. Shopper docket arrangements may potentially raise concerns under a number of provisions of the CCA.
Petrol price information
The ACCC is also looking into price information sharing arrangements in relation to the retail petrol sector because of concerns that such arrangements may be in breach of the Act.
The petrol price sharing arrangements allow for the private and very frequent exchange of near real time comprehensive retail price information between the major petrol retailers. The ACCC is concerned that this allows retailers to signal price movements, monitor competitors’ responses, and react to them. The ACCC is concerned that these arrangements may lessen price competition in petrol retailing to the detriment of consumers.
Priority: Online issues
We have also decided to place further emphasis on online competition and consumer issues.
For example, this year work that has been looking closely at online group buying websites will come to a head. These sites, also referred to as ‘daily deals’ or ‘deal of the day’ sites, sell vouchers for heavily discounted goods or services. Online group buying sites typically negotiate these deals with businesses and market the deals to their members and the public through various means including social media. Despite recent inroads from the work of Australian Consumer Law (ACL) regulators, during the past couple of years there has been a significant increase in complaints about these websites.
The ACCC recently instituted proceedings against Scoopon in the Federal Court. The ACCC alleges that Scoopon engaged in misleading and deceptive conduct and made false and misleading representations to businesses and consumers. Scoopon is one of Australia’s largest online group buying sites. The ACCC alleges that Scoopon misled consumers regarding their ability to redeem vouchers, their refund rights, and the price of goods advertised in relation to some of its deals. The ACCC also alleges that Scoopon represented to businesses that there was no cost or risk involved in running a deal with Scoopon, when a fee was payable to Scoopon. Further, it is alleged that Scoopon misled businesses by claiming that between 20 per cent and 30 per cent of vouchers would not be redeemed when there was no reasonable basis for this representation.
On the competition side, the ACCC is alert to consumer concerns that many products and services have different prices in different regions. Consumers are regularly identifying that retailers, both online and bricks and mortar outlets, are charging Australian consumers higher prices. It has been a longstanding concern that international suppliers and manufacturers are engaging in international price discrimination to the detriment of Australian consumers. Last week a Parliamentary Inquiry, which has been considering issues related to the consumer impacts of online price discrimination in the IT industry delivered its report and made a number of recommendations.
Price discrimination is not prohibited per se under the Competition and Consumer Act. However, we are concerned to ensure that price discrimination is not a manifestation of other forms of conduct that are likely to raise competition concerns under the CCA, such as misuse of market power, resale price maintenance or an anticompetitive arrangement between competitors.
The growth of online retailing in Australia has highlighted a range of exclusive dealing arrangements which prevent online retailers selling certain products. There are concerns that traditional, larger bricks-and-mortar retail chains in Australia have the incentive and the means to influence Australian distributors’ decisions about whether, and on what terms, to supply to online stores. Other concerns have been raised in relation to restrictions on overseas based online stores that seek to supply into Australia. While individual instances of such conduct are often unlikely to substantially lessen competition and breach the CCA, cumulatively they could have considerable adverse consequences for consumers. We continue to consider concerns as they are raised with us, and our focus is to identify circumstances where these arrangements may have a material impact on competition and consumers.
Priority: Consumer protection in energy
Door to door
On the energy side, we have tackled what was, in our view, reprehensible treatment of consumers by retailers involved in door to door sales, using our full range of enforcement and compliance tools.
In August 2012, we launched a research report on the door to door sales industry and new, practical tools to help consumers. The research report highlighted the scale of door to door selling, the role of commission based remuneration in driving aggressive sales behaviour, and some of the tactics used to prey on ‘easy targets’.
The ‘Knock! Knock! Who’s There?’ guide gives consumers information about their rights, including asking a sales person to leave, which they must do, and asking for time to consider the offer. We also made available stickers to let sales people know the householder does not want to be door knocked and door hangers to remind consumers of their rights as they answer the door.
Having previously put the industry on notice in September 2011, we have now taken legal action against several traders. In the first case to be brought under the Unsolicited Consumer Agreement provisions, the Federal Court ordered Neighbourhood Energy, a Victorian-based electricity retailer and its former marketing company, Australian Green Credits Pty Ltd, to pay a total of $1 million by consent in relation to their door-to-door selling practices.
Further, in April, two AGL companies were ordered to pay a total of $1.5 million for illegal door-to-door selling practices. CPM Australia Pty Ltd, the marketing company used by AGL, was also ordered to pay $200,000 for its role in the conduct.
Action was also instituted in March against Energy Australia (formerly known as TRUenergy Pty Ltd) and four marketing and sales companies engaged by them, in relation to door to door selling practices.
Price comparators
Another area of concern for the ACCC has been the potential for consumers to be misled by price comparison services in the energy sector.
In July last year, the Federal Court ordered the company formerly known as Energy Watch Pty Ltd (now in Liquidation) to pay $1.95 million for misleading advertising and its former CEO, Benjamin Polis, to pay $65,000 for his voiceover role in misleading radio advertisements.
The orders to pay civil pecuniary penalties follow the Court's finding in April 2012 that in an extensive advertising campaign Energy Watch made a number of false and misleading representations in 80 advertisements across various forms of media.
The misleading advertising related to representations about the nature of the Energy Watch service and the savings consumers would make by switching energy retailers through the Energy Watch service.
The Court found the advertising had:
- falsely represented that the Energy Watch service compared the rates of all or many of the energy providers in a person's area, when in fact it only compared the rates of a person's current energy retailer with those of energy retailers with which the company had commercial agreements in place.
- falsely represented the savings residential and business energy users would make in the 12 months following switching their energy retailer through the Energy Watch service.
Priority: Consumer Guarantees
Hewlett-Packard
In 2012/13, the ACCC initiated two separate proceedings in the Federal Court in relation to alleged misrepresentations to consumers about their rights under the consumer guarantee provisions.
Proceedings were instituted against Hewlett-Packard Australia Pty Ltd for false or misleading representations to consumers and retailer about their rights under the ACL in respect of consumer guarantees.
In July, the Court ordered Hewlett-Packard to pay a $3 million civil pecuniary penalty for making false or misleading representations to customers and retailers.
The court found that HP made a number of false or misleading representations to consumers about their consumer guarantee rights, including that:
- the remedies available to consumers were limited to the remedies available at HP’s discretion;
- consumers were required to have their product repaired multiple times before they were entitled to a replacement;
- the warranty period for HP products was limited to a specified express warranty period;
- consumers were required to pay for remedies outside the express warranty period; and
- products purchased online could only be returned to HP at HP’s sole discretion.
In addition, the Court found that HP represented to retailers that it was not liable to indemnify the retailer if the retailer failed to obtain authorisation from HP before giving a consumer a refund or replacement.
Harvey Norman
The ACCC also recently instituted proceedings against nine Harvey Norman franchisees for their alleged false or misleading representations to consumers about their consumer rights.
While the allegations made by the ACCC against each of the franchisees differ, examples of the misrepresentations include representations that:
- the franchisee had no obligation to provide remedies for damaged goods unless notified within a specific period of time such as 24 hours or 14 days;
- the franchisee had no obligation to provide remedies for goods still covered by the manufacturer’s warranty; and
- consumers must pay a fee for the repair and return of faulty products.
Priority: Credence Claims
New to our priorities this year is an interest in credence claims, particularly those in the food industry with the potential to have a significant effect on consumers and the competitive process.
Consumers are increasingly placing weight on premium claims made by producers that a consumer cannot test or validate. They are not in a position to fact check every claim and in this regard are in the hands of the producer who makes claims about their goods or services. Such information asymmetries can have significant impacts on consumers, competitors and the competitive process and really emphasises the interaction between consumer and competition law.
We have already been working on these matters with actions in relation to a number of ‘free range’ claims, we have tackled alleged misrepresentations in the labelling of extra virgin olive oil and taken on country (or region) of origin claims from sheepskins to meat and fruit and veg.
Chickens
In one recent case, the Federal Court found Baiada Poultry Pty Ltd and Bartter Enterprises Pty Ltd, the processers and suppliers of Steggles branded chicken products, engaged in false, misleading and deceptive conduct in describing on product packaging and in advertising that its meat chickens were ‘free to roam’ in large barns when this was not the case.
The Australian Chicken Meat Federation Inc (ACMF), the peak industry body for Australia’s chicken meat industry, was also found to have engaged in false, misleading and deceptive conduct, by claiming on its website that chickens produced in Australia were ‘free to roam’ or able to ‘roam freely’ in large barns.
The Court found that the ordinary and natural meaning of the phrase ‘free to roam’ is “the largely uninhibited ability of the chickens to move around at will in an aimless manner.” In contrast, Justice Tracey found that at times in their growth cycle the chickens “could not move more than a metre or so (at most) without having their further movement obstructed by a barrier of clustered birds”.
Steggles statistics indicated consistent stocking densities of between 17.4 and 19.6 chickens per square metre. The ACCC alleged that at these densities each chicken, on average, had access to floor space which was less than the size of an A4 sheet of paper and that this was contrary to the representation that they were ‘free to roam’.
Consumers must be able to make informed purchasing decisions. Promotional activities that convey an impression of farming practices are powerful representations that influence food choices. The court’s decision makes it clear to producers and suppliers that any claims made in relation to farming practices must be accurate.
Relief, including penalty, is yet to be determined.
Bread
Another example of our work in the credence claim field is in relation to Coles supermarkets and partially baked bread. The ACCC has alleged false, misleading and deceptive conduct in the supply of bread that was partially baked and frozen off site, transported to Coles stores and ‘finished’ in-store. The products were then labeled as ‘Baked Today, Sold Today’ and in some cases ‘Freshly Baked In-Store’ at Coles stores with in-house bakeries, while nearby signs stated ‘Freshly Baked’ or ‘Baked Fresh’. The ACCC alleges that this was likely to mislead consumers into thinking that the bread was baked from scratch in Coles’ in-house bakeries on the day it was offered for sale.
As well as potentially misleading consumers, such representations may have a detrimental impact on the businesses of competitors. Misleading credence claims can undermine the level playing field and disadvantage other suppliers such as the smaller, often franchised bakeries that compete with Coles.
The ACCC has instituted proceedings against Coles for this conduct and we are seeking costs, declarations, injunctions, pecuniary penalties, and orders that Coles review its compliance program, as well as orders that Coles publish corrective notices on its website and in Coles supermarkets that have in-store bakeries.
Enforcement tools
Before leaving enforcement, I would just like to make mention of the benefit we find in having at our disposal a range of enforcement tools other than litigation. Litigation can be time consuming and resource intensive. We cannot possibly litigate every reported breach of the CCA. Litigation tends to be reserved for particularly serious breaches of the CCA, with the potential to cause significant harm to consumers and competition.
For the past twenty years, s.87B has provided us with the ability to accept court enforceable undertakings. We have made widespread use of this provision, particularly in relation to consumer law issues and to remedy otherwise anti-competitive mergers. Indeed, it is hard to contemplate life without s.87B of the CCA. In the context of consumer protection matters, court enforceable undertakings are a very flexible tool which provides the opportunity to resolve problematic conduct, provide consumer redress and implement compliance programs going forwards. I understand that the NZ Consumer Law Reform Bill currently before Parliament is proposing the introduction of court enforceable undertakings in New Zealand and I think the NZCC will find this a very useful tool at its disposal.
More recently we have also had the ability to issue infringement notices where we have reasonable grounds to believe that a person has contravened certain consumer protection laws. This power provides us with the ability to take swift action to address less serious or isolated conduct. In some circumstances we use a combination of infringement notices and s.87B undertakings.
Mergers
Now to mergers, where I will also talk a bit about how the same court enforceable undertaking are used by merger parties to resolve competition concerns. But first, just a bit of background on how the ACCC operates as well as our approach to global transactions and the benefits of cooperation between the ACCC and NZCC.
Clearance regimes and cooperation
As mentioned earlier, the ACCC and the NZCC have a long history of working cooperatively during reviews of potentially anti-competitive mergers that impact on both sides of the Tasman, notwithstanding differences in our merger clearance regimes.
In New Zealand, merger clearance applications are made under a formal merger regime established under the Commerce Act.
Similarly in Australia, parties also have the option of seeking formal clearance under our Act since this option was introduced under our legislation in 2007. However, the reality is that no applications have been received to date for formal clearance, with merger parties instead opting only for informal clearance which provides them with the ACCC’s view on whether a merger is likely to substantially lessen competition.
The differences do not extend to the actual merger test which is the same (substantial lessening of competition or SLC) in both regimes. The major point of difference is that in order to grant formal clearance in New Zealand, the NZCC must be satisfied that an acquisition will not SLC (as would the ACCC if parties utilised the formal clearance regime in Australia). Under the informal clearance regime in Australia, the ACCC must be able to satisfy the court that an acquisition will SLC to breach s.50 of the CCA. However, this distinction is rarely significant.
There are also some differences in the processes observed under the two regimes, but in practice these differences have not detracted in any way from the degree of cooperation between the ACCC and NZCC. In fact, liaison on merger reviews has become even closer as a result of Commissioner cross-appointments.
Some recent matters involving the cross-appointments have been the Penguin/Random House matter and two matters in the plastic packaging industry, Visy/Hollywood Plastics and Pact/Viscount Plastics. The ACCC and NZCC ultimately reached the same view on the first two mergers, to clear both matters as we did not consider a substantial lessening of competition was likely.
An example of the two agencies reaching different outcomes is Pact Group’s acquisition of Viscount Plastics which both agencies reviewed last year. However, in this case the ACCC ultimately cleared this merger, finding that the merged entity was likely to be constrained by other suppliers. By contrast, in New Zealand it was found that the likelihood of constraint was not as strong, and the transaction was only cleared after a divestiture undertaking was given.
In all of these matters, staff of the two agencies worked closely throughout the investigation, to share knowledge on the structure and operation of the industries, exchange feedback obtained from market inquiries and discuss issues and test possible theories of harm. Mark Berry attended the ACCC’s commission and merger review committee meetings considering these mergers and I attended the NZCC’s division meetings and participated in the decision-making.
Global Mergers
Global mergers can have significant impacts on markets in Australia and New Zealand. However, parties in global mergers often focus their efforts on the larger jurisdictions, where the parent companies are located and notification is mandatory. Late notification can and often does result in merger parties putting unreasonable pressure on smaller countries to complete reviews in unrealistic timeframes. Australia and New Zealand, which both have a voluntary clearance process for mergers, are often quite a long way down the list for merger parties to notify in a global context.
This is not always the case, however, and indeed we have a very recent example of a global merger which had the potential to significantly affect competition in Australia and New Zealand, namely the Baxter-Gambro matter. It also provides the most recent and current example of the cross-appointments in action.
This merger caused concern in Europe, Australia and New Zealand. As well as the matter being considered under the cross-appointment arrangements, it has involved close cooperation between all three competition agencies for whom the matter raised concerns, with regular teleconferences between the case teams of each agency. After examining potential issues in a number of dialysis related markets, all three jurisdictions concerns focused on the CRRT market. A divestiture package was offered by the parties to remedy these concerns. The merger has now been cleared in Europe and New Zealand subject to the approval of a suitable purchaser for the divestiture package. The timeline in Australia is currently suspended but the matter looks likely to be finally resolved through a coordinated divestiture remedy covering all three jurisdictions.
Year-in-review – some significant ACCC merger reviews
Just as it has been an enforcement priority, acquisitions in the retail supermarket sector in Australia, which is dominated by two major supermarket chains (Coles and Woolworths), have and will continue to be an important focus for us.
In the past year, we have closely reviewed a number of acquisitions involving the major supermarket chains, some of which have raised quite complex competition issues. I will briefly outline some of the key matters we have considered:
Glenmore Ridge
The ACCC recently decided to oppose the proposed acquisition by Woolworths of a “greenfield” supermarket site at Glenmore Ridge, a new residential estate situated in Glenmore Park in the western suburbs of Sydney. Given that Glenmore Park is bounded by a busy motorway and non-residential areas, our inquiries indicated that the constraint provided by supermarkets outside the suburb was substantially weaker than the constraint between supermarkets within Glenmore Park. This emphasised to us the importance of access to a choice of competitive supermarket shopping opportunities within the Glenmore Park suburb. Woolworths already operates the only supermarket in the suburb of Glenmore Park and it also owns the next closest supermarket located in the nearby suburb of South Penrith. The Glenmore Ridge site represented the only opportunity for a competing supermarket to enter Glenmore Park in the foreseeable future, other than an ALDI store that is due to open in 2014. In effect, the choice was between Glenmore Park residents having two Woolworths and one ALDI supermarket, or having three different supermarkets in their area. We considered that an alternative supermarket at the Glenmore Ridge site would stimulate local competition and improve consumer choice.
Hawker
By contrast, the ACCC decided not to oppose the acquisition by Woolworths of an independent Supa IGA supermarket store in the suburb of Hawker in Canberra. During the review, the ACCC commissioned customer surveys to assist in the assessment of this matter. The surveys clearly indicated that the Supa IGA’s closest competitor in the local market was a Coles supermarket at a nearby shopping centre in Jamison. Existing Woolworths stores were more distant competitors to the target store. While initial market feedback had suggested that the Hawker Supa IGA provided a strongly differentiated offering on non-price factors such as its product range and service, the customer surveys we commissioned indicated that while consumers derived some value from the differentiated offer provided by the Hawker Supa IGA store, only a small proportion of survey respondents said an aspect of the store’s range, service or pricing was the most important reason they shopped there.
Most customers used the Hawker Supa IGA as a limited part of their overall grocery shopping, and despite its product differentiation, it drew very few customers from outside the suburbs immediately surrounding it. While product and service differentiation by the Hawker store represented a competitive response that was valued by customers, and which would be lost through the acquisition, it did not appear to impose a significant competitive constraint on other market participants. Therefore the ACCC considered that the removal of the Hawker Supa IGA would not reach the threshold of a substantial lessening of competition.
Ballarat hardware
Still on Woolworths but in relation to hardware, in October last year the ACCC opposed the proposed acquisition by Woolworths of an independent chain of three hardware stores, G Gay & Co hardware stores, in the regional town of Ballarat. Woolworths was planning to enter the Ballarat market with its own Masters store and the acquisition would remove one of Woolworths’ closest competitors in the Ballarat area (the other being Bunnings). Our investigations suggested that the Gay stores were vigorous and effective competitors in terms of price, product range and service and likely to provide a strong competitive constraint on the suppliers of hardware and home improvement products in the area.
Heinz-Rafferty’s Garden
Moving onto a different industry, but in which the power of the major supermarket chains was still an important consideration, we reviewed and ultimately opposed a merger between Heinz and Rafferty’s Garden, two of the largest suppliers of infant food in Australia. The merged firm would have accounted for around 80 per cent of wet infant food and 70 per cent of cereals and snacks. Most sales of infant food occur through the supermarket chains. A key issues in assessing the competitive effects of this merger was the dependence of the suppliers on the major supermarket chains for stocking their products and whether the countervailing power of the chains, for example through the sale of their own private label infant food or by sponsoring new entry, would sufficiently constrain the merged entity. Our investigations indicated that while the major supermarket chains possessed a degree of countervailing power, this was insufficient to overcome the significant loss of competitive constraint resulting from the proposed acquisition. Fierce inter-brand competition between the suppliers, including Rafferty’s Garden, was more likely to constrain any attempt by the firms in the market to raise prices, reduce promotions or the quality or level of innovation. Given that the proposed acquisition would result in a highly concentrated market where barriers to entry and expansion were already high, particularly due to brand loyalty, the ACCC considered that the merger would result in a substantial lessening of competition.
Other significant merger matters
Outside the supermarket sector, I want to also mention three other high profile merger matters we reviewed which took place in concentrated industries:
- late last year, the ACCC opposed a merger between Sonic and Healthscope in the state of Queensland, which are respectively the largest and third largest providers of community pathology services. The ACCC concluded that the merger would remove a substantial competitive constraint on the existing two major pathology providers and that the removal of Healthscope was unlikely to be replaced in a timely and sufficient manner by the new entry or expansion of other pathology providers.
- The ACCC also opposed a merger between two online automotive classified advertising suppliers, Carsales and Trading Post. As Trading Post is a well-established and high profile brand for automotive classifieds advertising and provides an important competitive constraint on Carsales, it was considered that the merger would significantly increase Carsales’ market power and substantially lessen competition to the detriment of car dealers and private advertisers. Further, the merger would reduce choice for advertisers by removing a significant competitor with an offer that differs in important ways from the Carsales’ offer.
- One high profile matter which was recently cleared was the acquisition by Virgin Australia of 60% of Tiger Airways Australia. Virgin is the second largest domestic airline operator in Australia, behind Qantas, while Tiger commenced operations in November 2007 and is primarily a ‘low-cost’ carrier. We had a number of concerns about the impact of the acquisition on competition in the Australian market for domestic air passenger transport services, including the elimination of direct competition between Tiger and Virgin and an increase in the likelihood of coordinated conduct between the remaining two airlines. However, it was put to us that if the acquisition was not allowed, Tiger would exit the Australian market. Where parties raise such ‘failing firm’ claims, we will carefully and critically scrutinise their arguments. We require strong and credible evidence that the target is in imminent danger of failure and is unlikely to be successfully restructured without the acquisition. After extensive investigations and a thorough examination of the issue, the ACCC came to the view that Tiger Australia would be highly unlikely to remain in the local market if the proposed acquisition did not proceed. In six years in Australia, Tiger Australia had never made an operating profit. In fact, it sustained large losses throughout its operation and was expected to continue to do so. The evidence also suggested that Tiger’s performance was unlikely to be improved by its current owner or other potential shareholders if the proposed acquisition did not proceed, such that it would offer vigorous competition as an independent operator. Rather its assets were likely to be relocated to Tiger’s related entities in other aviation markets. While we would always prefer to see a greater number of independent airlines competing in the domestic market, we concluded that it was highly likely that Tiger would leave the market if this acquisition did not go ahead, and the acquisition would not be likely to have the effect of substantially lessening competition.
Court enforceable undertakings
If the ACCC forms the view that a substantial lessening of competition is likely to arise as a result of a particular merger, the merger parties can offer the ACCC a court enforceable undertaking under section 87B of our Act. This is the same provision used to resolve many consumer protection matters, which I mentioned earlier.
A key difference between the Australian and New Zealand approach to remedies is the type of undertakings that can be accepted to resolve competition concerns in merger reviews. Where the formal merger clearance regime in New Zealand limits the NZCC to only accepting structural undertakings from merger parties, there is no such restriction under s.87B. While the ACCC generally has a preference for structural remedies, it can also accept behavioural or quasi-structural undertakings where appropriate. In some cases, behavioural remedies will be an important adjunct to structural remedies, e.g. providing for transitional supply arrangements.
A recent example of the ACCC’s willingness to accept more behavioural or quasi-structural remedies is illustrated by the ACCC’s decision in relation to Nestle’s acquisition of the infant formula division of Pfizer, which occurred late last year. This was a global merger between two infant formula suppliers which would have a significant impact on markets in Australia by merging two of the three largest suppliers.
The ACCC decided not to oppose this merger after accepting an undertaking from Nestle which contained a number of interesting behavioural and quasi-structural elements. Pursuant to the undertaking, Nestle as the acquirer, agreed to license Pfizer’s Australian infant nutrition brands exclusively to an ACCC approved purchaser for ten years followed by a further ten year ‘black-out’ period, in which Nestle was prohibited from using any of Pfizer’s brands in Australia.
While it may seem unusual that the ACCC did not require a permanent divestiture of Pfizer’s brands in Australia, the undertaking was crafted specifically to address the competition concerns that would arise as a result of the merger, which were primarily related to the high barriers to entry and expansion due to strong incumbent brand loyalty. The undertaking aimed to assist the entry of a purchaser in the Australian market place by allowing it to ‘borrow’ for a decade, Pfizer’s infant formula brands, which have long-standing reputation and heritage in Australia. Following this, the purchaser would have the benefit of a 10 year ‘black-out’ period to establish brand equity in its re-branded products, without facing competition from Pfizer’s brands.
For Nestle, the undertaking balances its interests in having a unified global brand portfolio given that it would be the owner of Pfizer’s brands in virtually every other country around the world in which Pfizer operates, as Pfizer’s brands would ultimately revert back to Nestle in 20 years’ time.
In consulting on the undertaking, the ACCC coordinated extensively with a number of competition agencies around the world, to ensure consistency in any remedies agreed across jurisdictions. We liaised most extensively with the South African Competition Commission (SACC) as it was contemplated that in order to have sufficient scale, the Australian and South African businesses of Pfizer may be sold to the same purchaser. In order to facilitate this, the remedies ultimately accepted by the SACC were virtually identical to those accepted by the ACCC. The ACCC and SACC approved the same purchaser, being Aspen Pharmacare. Aspen was previously a licensee of Pfizer’s infant formula brands in South Africa and therefore has experience in the infant nutrition industry and knowledge of Pfizer’s products and brands.
Adjudication
Process in Australia
Like New Zealand, Australia has an authorisation process which recognises that certain potentially anti-competitive conduct may nonetheless result in public benefit. Where the public benefits outweigh the public detriment from anticompetitive conduct authorisation can be granted. The proposed conduct can go ahead without risk of legal action for breaches of the competition law.
However, unlike the NZCC, the ACCC no longer considers merger authorisations. Since 2007, merger parties seeking authorisation must make such applications directly to the Australian Competition Tribunal. There have been no merger authorisation applications to the Tribunal since the law was changed.
Even with merger authorisation applications no longer being made to the ACCC, it is fair to say the authorisation regime in Australia is utilised significantly more than in New Zealand. In 2012-13 the ACCC issued 32 final authorisation decisions (excluding minor variations). The types of conduct granted authorisation by the ACCC include collective bargaining, codes of conduct, joint ventures or alliances and industry levies.
By contrast, since 2011 the NZCC has considered four applications for authorisation (two merger applications – both granted and two agreement applications – one granted and one declined on the basis that the NZCC did not have jurisdiction as the arrangement was not likely to breach the Act).
There are likely to be a number of reasons for the difference in the number of applications lodged in each jurisdiction.
- There is no jurisdictional threshold in Australia requiring the ACCC to first consider whether conduct lessens competition before considering the benefits and detriments.
- In Australia, parties often seek the protection of authorisation to avoid exposure to technical breaches of the Act even though there may be no real competition concerns.
- The ACCC has less reliance on the quantification of benefits and detriments than has traditionally been the case with the NZCC following relevant Court decisions (particularly Telecom Corporation of New Zealand v Commerce Commission & Ors 1992).
The ACCC also administers an alternative exemption process to authorisation, called notification. The notification process is only available for certain types of conduct, such as exclusive dealing and small businesses collective bargaining.
The legal protection for notified conduct commences automatically, either on the day the notification was lodged or shortly after. The ACCC is required to act to remove the legal protection from the notification if it is not satisfied that the likely public benefit will outweigh the likely public detriment. In the case of exclusive dealing notifications other than third line forcing, the ACCC must first be satisfied that the conduct is likely to substantially lessen competition.
In the last financial year the ACCC assessed more than 750 notifications for exclusive dealing conduct, relating to 410 different matters. Many of these notifications were for third line forcing, which is a per se breach of the CCA.
CBH
Exclusive dealing notifications rarely raise competition concerns, but occasionally they do, particularly where the conduct is likely to facilitate a leveraging of market power from one market into another. This was the case in relation to the ACCC’s consideration of an exclusive dealing notification lodged by Cooperative Bulk Handling Limited. The ACCC decided to revoke the notification in June 2011. CBH sought review of the ACCC’s decision by the Tribunal and the Tribunal hearing took place in March and May 2012. On 19 April 2013 the Australian Competition Tribunal issued a decision affirming the ACCC’s notice revoking this notification.
The notified conduct involved CBH requiring West Australian grain growers who use CBH’s ‘up-country’ grain storage facilities to also use CBH’s transport services to move grain to port for export. The ACCC was concerned that this conduct foreclosed competition for the supply of grain transport services, amounting to a substantial lessening of competition, and that there were insufficient offsetting public benefits.
The Tribunal was not satisfied that the notified conduct was not likely to have the effect of substantially lessening competition or that the conduct is likely to result in a benefit to the public that outweighs the detriment to the public constituted by any lessening of competition. Therefore, the ACCC’s notice revoking the notification was allowed to stand.
In particular, the Tribunal considered that by denying growers and marketers opportunities to make their own transport arrangements, the notified conduct substantially lessened competition in the market for grain transport services in Western Australia.
The decision does not affect CBH’s ability to offer customers the option of a bundled storage and transport option, known as Grain Express, but the Tribunal considered that the notified tying conduct was not necessary to realise the benefits of Grain Express.
Airline alliances
Some of the most significant applications for authorisation involve airline alliances. National restrictions on airline ownership mean that efficiencies that would usually be achieved via merger often have to be achieved through cooperative arrangements. Hence, authorisation is particularly important in the airline industry.
Aviation agreements are often areas of joint interest between Australia and New Zealand and as part of our assessment we consult with the New Zealand Ministry of Transport, the body currently responsible for aviation alliances. Although I note that a review is looking at whether the competition regime for international air services should remain under the Civil Aviation Act or be moved to the Commerce Act.
Aviation agreements have the potential to deliver significant efficiencies, e.g. through economies of scale and scope, improved scheduling and reduction of wingtip to wingtip flying and the reduction or elimination of double marginalisation on complementary services. However, the greatest benefits will often flow from the most restrictive agreements, involving revenue sharing and agreements over prices, capacity and scheduling. Where there is sufficient remaining competition in the relevant markets, these efficiencies are also likely to be pro-competitive and to flow through to lower prices for consumers, but where competition is limited there is a trade-off to be considered.
I will briefly outline the ACCC’s most recent authorisation activity in the area of airline alliances.
Qantas-Emirates
In May the ACCC conditionally authorised an alliance between Qantas and Emirates for five years. The alliance involves coordination of their air passenger and cargo transport operations on all routes on a global, network wide basis.
The ACCC found that the alliance is likely to provide Qantas and Emirates customers with increased access to a large number of existing frequencies and destinations under a single airline code, improved connectivity and scheduling, and access to each alliance partner’s frequent flyer programs. The alliance is also likely to provide the airlines with increased flexibility to manage their fleet. Taking all these factors together, the Commission was satisfied that the alliance was likely to result in material, but not substantial, public benefits.
On most routes, the ACCC considered there would be limited anti-competitive detriment, either because there would be sufficient competition remaining on the route or because the route was very thin. However, the Commission did have significant competition concerns on the four trans-Tasman routes where the two airlines compete, and which together accounted for 65 per cent of trans-Tasman traffic in the year to June 2012.
Accordingly, the ACCC authorised the Qantas/Emirates alliance subject to conditions. Without the conditions the ACCC was concerned that Qantas and Emirates would have the ability and incentive to unilaterally reduce or limit growth in capacity (in order to raise airfares) on the four routes between Australia and New Zealand where they both operate air passenger and cargo transport services. The conditions require Qantas and Emirates to maintain at least their pre-alliance aggregate capacity on the four trans-Tasman routes where the ACCC had competition concerns, subject to a review to consider whether increases in the minimum required capacity are warranted.
Virgin-Air New Zealand
The ACCC is currently assessing an application for re-authorisation by Virgin Australia and Air New Zealand to maintain and continue to give effect to the Australasian Airline Alliance Agreement.
This alliance involves coordination of international air passenger transport operations and related services between Australia and New Zealand. Freight operations and domestic networks are outside the scope of the Alliance.
The ACCC recently issued a draft decision proposing to grant conditional authorisation for three years. The proposed conditions require Virgin Australia and Air New Zealand to maintain capacity on various routes between Australia and New Zealand. The ACCC also proposes conditions requiring the airlines to provide key performance data to assist the ACCC in assessing whether the alliance is having any adverse effect on competition more generally.
Consultation on the draft is underway and a final decision is expected in August or September.
Updated guidelines
The ACCC issued updated Authorisation Guidelines in June after consulting publicly on a draft guideline in May. This was another example of the ACCC and NZCC engaging on common issues including through cross Commissioner consideration of revisions to our respective guidelines.
The ACCC’s updated guidelines, for the first time, explicitly describe the market failure framework which the ACCC applies as part of its assessment of applications for authorisation. Under this framework the ACCC recognises that where there is a market failure or market imperfection broadly construed, allowing conduct that might restrict competition in order to enhance efficiency and welfare may be in the public interest.
Concluding remarks
I will just briefly conclude my remarks with two observations:
- On the domestic front, the ACCC is very busy protecting and promoting effective competition for the benefit of consumers; and
- Cooperation across the Tasman has never been stronger. It would probably be no exaggeration to say that at least once a day there would be a telephone call, email discussion or meeting between our agencies at one level or another and in one area of activity or another.