21 April, 2016
General
What is the main piece of legislation of general application which regulates anti-competitive behaviour? What are the main prohibitions in the legislation?
The Commerce Act 1986 (Commerce Act). Its main prohibitions are:
(a) prohibition against contracts, arrangements or understandings that substantially lessen competition in a market;
(b) prohibition against price xing;
(c) prohibition against resale price maintenance;
(d) prohibition against taking advantage of market power; and
(e) prohibition against business acquisitions that would substantially lessen competition.
Which regulator is responsible for administering and enforcing competition laws?
The Commerce Commission.
Are there any exclusions from the competition legislation of general application? Are there any sector-speci c competition laws or regulations?
There are certain exceptions to the price xing provisions of the Commerce Act for joint ventures.
Certain government activities, for example PHARMAC (a monopsony national pharmaceutical funder) and the roll out of the bre broadband network, are exempt from the application of the Commerce Act.
Certain sectors are regulated under Part 4 of the Commerce Act, which regulates the price and quality of goods and services in non-competitive markets. This includes electricity lines services, gas pipeline services, and airport services at some airports.
Does the competition legislation apply extraterritorially to persons, behaviour or action outside the jurisdiction?
Yes. The Commerce Act applies to anyone engaging in conduct outside of New Zealand to the extent that such conduct affects a market in New Zealand.
What penalties and liabilities may be imposed for a breach of the competition law?
Under the Commerce Act, the courts can order that civil penalties be paid in respect of any breach of the prohibitions against anti-competitive conduct in the Commerce Act by companies of up to the greater of NZD10 million, or three times the value of any commercial gain or, if commercial gain is not known, 10 percent of the company’s turnover (including the turnover of all of its interconnected bodies corporate, if any). Penalties of up to NZD500,000 can be imposed on individuals. Companies cannot indemnify individuals for penalties or legal costs incurred from price xing.
In addition, private actions can be brought by third parties (e.g., competitors, customers or consumers) which have been detrimentally affected by the anti-competitive conduct seeking damages for the amount of the loss suffered.
The courts may also impose injunctions to restrain anti- competitive conduct and vary or nullify anti-competitive contracts or arrangements.
Prohibition on anti-competitive agreements
What kinds of agreement or conduct is illegal under the prohibition?
The prohibition applies to any agreement with the purpose, effect or likely effect of substantially lessening competition in a market. A prohibited agreement may be formal or informal (i.e. anything that amounts to a consensus that leads to an agreed course of action). The prohibition applies to both horizontal and vertical agreements (price xing will only apply to horizontal agreements).
Information exchange and price signalling agreements will be prohibited if their purpose, effect or likely effect is to substantially lessen competition in a market, or to x, control or maintain price.
What types of agreements or conduct are illegal by object? And which are illegal only if they are signi cantly anti- competitive in effect?
Any agreement, arrangement or understanding to x, control or maintain a price is illegal whether or not it in fact substantially lessens competition.
All other agreements, arrangements or understandings that have the purpose, effect or likely effect of substantially lessening competition in a market are illegal.
Is there regulation of vertical agreements and if so, what type of vertical restraints or provisions in such agreements are typically examined?
Yes. Vertical agreements that have the purpose, effect or likely effect of substantially lessening competition in a market are prohibited.
Vertical restraints that are typically examined include exclusive-dealing clauses, price-matching provisions, and tying arrangements.
Is resale price maintenance allowed? Are recommended resale prices or maximum resale prices permitted?
No. Resale price maintenance is prohibited. Recommended resale prices and maximum resale prices are permitted (in the latter case provided there is room for movement on price below the maximum resale price).
Are there any defences or relief from liability provided by the legislation?
Yes. Some agreements are exempt from the prohibition on anti-competitive agreements, such as intellectual property agreements, international shipping agreements, partnership agreements, agreements between interconnected bodies corporate, and agreements to comply with standards.
Joint venture agreements and joint buying or advertising arrangements may also be exempt.
In addition, businesses can apply to the Commerce Commission for authorisation of an agreement that substantially lessens competition. Authorisation will only be granted if the Commerce Commission is satis ed that the bene ts to the public outweigh the harm of the agreement.
Is there a leniency regime? If there is, please describe the extent of and process in seeking leniency?
Yes. A business can apply to the Commerce Commission for leniency if that business has been involved in a cartel. The Commerce Commission considers cartels to involve illegal agreements by competitors not to compete with each other,
for instance through price xing, the restriction of outputs, the allocation of customers, suppliers or territories, and bid rigging.
If a business is the rst member of a cartel to inform the Commerce Commission about its operation, that business can obtain full immunity from prosecution. That business must contact the Commerce Commission to obtain a “marker”, which holds their position as rst applicant for immunity. To perfect that marker, the business must provide the Commerce Commission with a statement, often called a “proffer”, that contains details and evidence of the cartel arrangements. The business is then under ongoing obligations of cooperation and con dentiality.
If a business is not the rst member of a cartel to approach the Commerce Commission, that business will not receive immunity but will receive more lenient treatment from the Commerce Commission if the business cooperates fully with the Commerce Commission.
Abuse of Dominance or Market Power
How is “dominance” or “market power” determined? Is there a market share test?
Under the Commerce Act, a business has substantial market power if it can pro tably hold prices above competitive levels for a sustained period of time. Market share is indicative, but not determinative, of market power. Other relevant factors include existing competition in the market, the potential for competition in the market, and countervailing buyer power.
What type of conduct constitutes abuse of dominance or abuse of market power?
A business will take advantage of its market power if it acts in a way that it would not have acted if it did not have market power and it does so for a proscribed purpose.
The proscribed purposes are restricting the entry of another business into any market, preventing or deterring a business from being able to compete effectively, and eliminating a business from any market.
Examples of conduct that have been investigated under this provision include predatory pricing, refusal to supply, exclusive dealing and tying.
Are there any defences or relief from liability or exclusions applicable for abusive conduct?
No, there are no defences to taking advantage of market power, except to argue that the statutory test is not made out.
Merger Control
Is there a merger control regime? What is considered a “merger”?
Yes. Business acquisitions that would have, or would be likely to have, the effect of substantially lessening competition in
a market are prohibited. The Commerce Commission may give clearance for a business acquisition if it is satis ed that the merger will not have, or would not be likely to have, the effect of substantially lessening competition in a market. The business acquisition will then be protected from legal action under New Zealand’s competition laws.
Any acquisition by one person or business of the assets or shares of another business is considered to be a merger.
Is the merger notification a mandatory or voluntary process?
Voluntary.
When must the merger be noti ed to the regulator?
The merger must be noti ed to the Commerce Commission before it becomes unconditional. It is not possible to obtain retrospective clearance post-merger.
Businesses should contact the Commerce Commission as early as possible about a potential application for clearance. If the Commerce Commission grants a clearance, the business has one year from when the clearance is granted to carry out the merger.
What are the ling thresholds and are there any exemptions from notification requirements?
There are no compulsory noti cation requirements as seeking clearance is voluntary. However, the Commerce Commission has issued guidelines which include market share and concentration indicators to help businesses identify mergers where seeking clearance should be considered.
A merger is unlikely to require a clearance application if, post- merger:
(a) the three largest rms in the market have a combined market share of less than 70%, and the merged rm’s combined market share is less than 40%; or
(b) the three largest rms in the market have a combined market share of 70% or more, and the merged rm’s combined market share is less than 20%.
Please provide a brief description of the merger clearance process and the typical timeline for merger clearance.
Businesses must register an application for clearance, along with all the necessary information and payment of an application fee.
The typical timeline will depend on the complexity of the acquisition. Usually, within two weeks of receiving the application, the Commerce Commission will provide a draft timeline. Shortly afterwards the Commerce Commission will publish a “Statement of Preliminary Issues”. The Commerce Commission typically will make a decision on whether or not to grant clearance within three to four months of receiving the clearance application. More complex acquisitions can take a longer period of time.
What are the consequences of failing to notify the regulator when required?
Notification is not required. However, if a business does not apply for clearance before going ahead with a business acquisition, there is a risk that the acquisition could be challenged by the Commerce Commission and stopped on the ground that it would lead to a substantial lessening of competition.
The penalties for breaching the prohibition against business acquisitions that would substantially lessen competition are up to NZ$5,000,000 for a company and up to NZ$500,000 for a person. If the merger has already gone ahead, the courts can require divestiture of the assets or shares purchased. If the merger is yet to go ahead, it may be injuncted.
Milton W. M. Cheng, Managing Partner, Baker & McKenzie
milton.cheng@bakermckenzie.com
