Describe and Evaluate the Australian Competition Law

Describe and Evaluate the Australian Competition LawIntroductionCompetition in business is driven by the search for the scarce resources. It broadly refers to endeavors and attempts by individuals in trade to offer the best possible terms with an intention of attracting more customers than the existing competitors. Although competition has its shortcomings especially to the traders, it has its own advantages mostly directed to the consumers such as reduced prices and quality services and goods. Unregulated business and commerce will in most cases lead to the existing business entities to develop roguish and exploitation tendencies. Competition is vital not only to safeguard the interests and warfare of consumers, but also streamline businesses. Competition law exists to supervise trade practices meant at ensuring fair play in businesses.

            Different states and countries have varied competition laws depending on the context and the nature of business dominant there. Competition law in the United States is referred to as antitrust law, it has the same key objectives pursued by competition law. European countries and specifically the European union has its own laws pursuing the same. The focus of this paper however shall be limited to the competition law in Australia. It will seek to focus at the prohibitions and objectives of this law, the problems raised by the law and the specific issues that it fails to encompass if there are any. It will also entail a comparison and a contrast of the same law, as it exists in the United States and in Europe.

Background information.

            Business competition is regulated by the Australian competition and consumer commission, it is an autonomous body established in 1995 out of the need and the necessity to bring together the then Australian Trade Practices Commission, a body charged with the responsibility of overseeing and regulating trade activities in Australia, and prices surveillance authority. The Trade Practices Act of 1974 is governed by this commission and is universally applied in the whole of Australia with no regard of the state or territories individual needs.

            The history of Australian competition law dates back to 1906 when it sought to control trade practices especially emanating from foreign owned business corporations. Before this, regulation on trade and competition was done by the common, which has by, then become redundant. Competition laws since then were ineffective and did not attract much attention till in the 1960s when it was felt that the existing trade practices were becoming increasingly repressive of the social common welfare.

            It was recognized that competition regulation was important to eliminate the hindrances that existed in trade practices form spilling over to the economy. Among the factors identified then that were restricting trade practices include price discrimination, backdoor price agreements, unfair tendering practices that were usually marred with collusion and bribery among many others. Although the 1965 act meant to curb these unfair trade practices was largely inefficient and lacked the necessary teeth and force to ensure public interests prevails, it to a large extent set the base that could be used for further action. This was against growing intense opposition from business corporations; this opposition was understandable putting into consideration that restrictive tendencies had spread to each and every corner of business operations[1]

                        The Trade Practices Act since its original legislation in 1974 has undergone many amendments and redefinitions. Hilmer report of 1993[2] major recommendation was to propose that all the state or territories legislation on competition practices be streamlined, integrated and harmonize so that all the territories are to ascribe to the same laws uniformly.

Act ProvisionsA number of bodies have been instituted by Trade Practices Act and charged with the responsibility of the specific legislations in the act. They are divided into Part II, IIA, III, and IIIAA and they range from Australian competitions and consumer commission, national competition council, Australian competition tribunal and the Australian energy regulator respectively [3]

 The part II of Trade Practice Act defines competition to encompass goods and services traded by non-residents as long as the activity is carried out in the Australian soil. It details the guidelines on the appointment and the constitution of the members of the constitution together with their remuneration among many other issues.

 Horizontal agreements

Section 45 of the Trade Practices Acts is against any horizontal arrangement meant to suppress competition among firms.  Any contracts, agreement or arrangement with a purpose of suppressing competition is considered by the act as unenforceable. All business entities hence are not allowed or expected to enter into arrangements that can in any way lessen competition in any substantial way.  This act however is not meant in any way to impede upon arrangements that are meant to facilitate buying of shares or assets but is exclusively limited to arrangement that tends to restrict competition as far as supply and buying of goods and services[4].

Price fixingSection 45c of the Trade Practices Act prohibits any covenants or agreements entered into by individual or corporations meant to in any way control prices. It outlaws any agreements or arrangements that might have an effect. Fixing, controlling or maintaining of the price for or a discount allowance rebate or credit in relation to goods or services. If these contracts or arrangements will in the long run have an impact of restricting competition.

            In 45c (3) an arrangement or a contract shall not be regarded as a covenant likely to result in controlling or fixing of prices by only the nature of the agreement or the content of the contract unless such as covenant is likely to result into being beneficial to certain parties. An agreement shall hence be deemed to price fixing it in any way seeks to control prices through discounts or credit, supplies and in the long run result into some substantial benefit to a party.

            It shall also be regarded as price fixing if it in the long run is beneficial to those that are close to the parties or individuals that are in competition with each other such that such an agreement or arrangement is likely to lessen competition. This includes a contract that categorically states that it has that specific intent or that implies that an arrangement might result to such an effect.

            Section 45 (2) a talks of perse breaches which are arrangements between a certain number of business competitors with an intention of making in accessible some of the goods, services or supplies to a certain group of customers.

BoycottsSection 45D, 45DB and 45 DA, talks about boycotts that are meant to restrict competition. It outlaws any incitement or any action of boycott whose intent and purpose is to cause or is likely to result to reasonable amount of loss of goods and services. It dis-allows any practice by individuals or corporations that seek or purport to prevent third parties or any other party for that matter to supply sell or buy goods to another party who is not related in any way to him. By relations this section refers to professional relationship for example an employer and an employee.

It also prohibits any conspiracy or an association of individuals or corporations that seeks in any way to restrict any individuals from carrying on with their business activities. A person is meant to have participated in a boycott if any of the activities that he or she engages in are in any way meant to further such a purpose.

An action is said to be a boycott if it seeks to restrict trade and competition and if in the long run will result to a substantial loss of an amount of money or in any way result to reasonable damage.

Employers and workers union for example are not allowed by this section to carry out practices that in anyway would be interpreted as boycotts. A case in reference is a recent penalty laid upon Communications, Electrical and Plumbing Union by the court earlier this year for having entered into contract with Victoria Loy Yang Company to only employ individuals who had certificates and accreditation from a certain professional body. In making the ruling the court noted that this arrangement was some sort of a boycott meant to restrict competition in the human resource field and hence outlawed due to its prohibitive nature.

There are instances when however these boycotts are allowed, in case of an industrial action. This is when workers in a certain industry gang up to press for their rights when they think that they have been unreasonably treated. It is also permitted when it appertain s to employees remuneration and improvement of their working conditions. It is also allowable if the parties involved can provide to the courts enough evidence to indicate that they had given a prior notice of the boycott.

Sherman Antitrust Act prohibits any concerted efforts by firms seeking to influence others not enter into any transaction with third parties  (15). Any conspiracy by companies or individuals with a purpose of influencing either not to purchase, sell or supply certain trade goods is illegal according to this act, however this has been mostly enforceable under the Sherman Act when the dealings are horizontal in nature. The ill treaty also seeks to pursue the same, any arrangement between corporations in the member states that tends to refrain either of them not to sell or purchase from a certain specific third party is illegal. This however does not extend to an independent supplier. This is in accordance with section 4 (1) of the treaty.

Anti competitive agreements.

Section 45c outlaws covenants meant to control and monopolize prices. If any covenant or agreement, understanding or contract in any way seeks to set and control prices or in any way that is meant to affect competition in any section, then that is a restrictive action and is outlawed. A contract however will be deemed to have an effect of lessening competition only if it is beneficial to one or the parties involved in the transaction or any other person for that matter or corporations that is close to the parties in question according to section 45(B).

The Sherman Antitrust Act of 1890 in US also outlaws any actions that will in any way restrict or monopolize trade practice. Any conspiracy or arrangement that seeks to restrict trade is punishable through a fine, imprisonment or both. This penalty extends to American citizens who do so in foreign territories. If any such a complaint arises the court shall then duly give a warrant of temporary closing the premises upon having reasonable grounds that the complaint is valid. The warrant extends further to seizure of the goods whether in transit or not. There is an exception as this law is not applicable to trade with other nations unless it is for import or export. This article is harsher than its Australian counterpart.

Article 81 of the EEC treaty also seeks to further the same. It prohibits any arrangement or contracts that will in one way restrict competition in the member states or within the EU common market. It further states that any such agreement or contract that will restrict competition as broadly described in article 81 will be considered void. Unlike the US anti trust laws, the section 81 does not have a provision for imprisonment.[5]

Section 46 B also provides the Trade Practice Act will in no way seek to grant immunity form the then stated rules in the argument that the New Zealand laws have stipulated otherwise. Part IVA addresses what the act refers to as ‘unconscionable conduct’. This arises from where the law fails to recognize the enforceability of any contract between any two parties, which after a close look is unfair to one of the parties. According to this act not being unconscionability in business practice arises when a specific transaction where one of the party has some sort of recognized disability that will prevent the said transaction or contract being unfair to the party with the disability and the dominant party is aware of it.

In failing to enforce such a transaction or contract, the court will have to establish the ability of the weaker party to see whether the contract is in any way unfair. It will gauge the strength of the consumer and to what length the business entity or the company has gone to try and unreasonably ensure that its interests are safeguarded. It will also establish whether any undue authority over the consumer has been or any trickery to try and influence the consumer to accept the deal. This part does not however seek to refer to goods and services acquired with an intention of trade or re supply but it refer to goods acquired in the ordinary manner for domestic consumption with no drive to earn any profit or interest. This section does not mostly protect the interests of the traders or those dealing with financial services. It is limited to consumers alone.

The provisions in this part are important as they recognize the weak situation facing consumers. An action that is unconscionable will not be enforced. Latest developments and amendments have sought to include and classify the business still at their formative stages as being in a special category such that if big corporations in any way use undue influence to arm twist these businesses, that conduct will be considered as unconscionable in the eyes of the law and hence unenforceable. In such a case the court shall rule in favor of the small business entity.

Part IV B is on industry codes. Here the act stipulates that every business entity must abide to the set regulations and codes set by the authority as long as law recognizes them. Part V of the act is dedicated wholly to security and guaranteeing the rights of the consumers. It centrally focuses on business entities that mislead consumers in regard to their offered goods and services. Any misrepresentation of information meant to in any way mislead the consumers that a company for example intends to do something in future to the benefit of the consumer shall be bound to stick to what had been priorly agreed upon. Mis-representation in this case refers to actions where a corporation gives misleading information that leads consumers to take a certain action that in the end is to his/her own detriment.

An example of these misrepresentations according to section 56 are among misleading adverts, harassment, and the action by corporations where they accept money from consumers while aware that what they have provided will not be delivered. Section 65 of this act also identifies misrepresentations as also entailing unsolicited goods and services. This is when consumers are charged for goods or services that they had not asked for in the first place. Corporations are also not supposed to engage in any way in selling, advertising soliciting for people to buy pyramid schemes.

The burden of proof According to the act lies with the corporation. This is referred to as evidential burden according to section 65 AN. The Trade Practice Act also empowers the minister concerned, should he/she have a reasonable that a certain corporation is producing or selling services or goods that are faulty and that may be harmful to consumers, the minister can instigate investigations and establish the appropriateness of the goods and then publish in the gazette on the results of the findings. This publishing will also include a notice of what will happen to the corporation and the goods involved. Should it occur to the minister that no appropriate action or due care has been taken by the corporation or individuals involved to rectify the substandard goods then the law will require the business entity to comply with the standards or recall the goods form the market. The penalty against non-compliance is a fine.

Vertical ArrangementThe practice of exclusive dealing is tackled in part IV section 47. This is where suppliers deny some operators their products as long as these operators are stocking their rival’s products. This hence is restrictive to trade. Companies that are listed in more than one country that in the process of carrying their business can affect business are also tackled by the act. Any form of a contract or an understanding between two people that will in the long run affect or be anti competition is outlawed by section 45 of the act, and so are any agreements seeking to control prices in whichever manner. This is in section 45 B [6]

Exclusive dealingsExclusive dealing according to this Act include providing discounts, credit facilities among others to induce operators while not extending these services to others, with an intention of restricting competition. Any contract, agreement or arrangement that seeks to further exclusive dealings will not be enforceable by the court of law. Unlike in the TPA, these exclusive dealings do not touch on labor unions and employee’s strikes Section 48 tackles the issue of resale price maintenance and other practices that seem to restrict the resupply, resale to certain territories or people.[7]

Section 47 categorizes exclusive dealings into two, there is one that is concerned with the business customers and the market as well as the “third line forcing” it further goes on to prohibit any conditions put on forth by the supplies, the lessen or the corporations to its customers, where these conditions seeks to control the prices or how these supplies are to dealt with. No such clause should be put in the contract whether oral or implied that seeks to indicate how such should be supplied S 47 (2) (d). A business entity is said to be involved in such as dealing if its goods or services are supplied conditionally or provides credit or discounts to another business entity with a condition that other corporation should only deal exclusively with that particular corporation 47 (2) (c), will not in any way deal with the competitors or any other business entity closely related to the competitor S 47 (2) (d) or will not re-supply the said goods or services, or refuses to give credit or discounts to an individual on the reasons that individuals has failed to conform by not to supply or deal with the competitors. S 47(3).

Third line forcingAccording to section 47 (6), third line forcing illegal. This is defined as where a corporation supplies goods to a particular customer in exclusive conditions that such a customer is to acquire some other goods or services from another party. It also extends S 47 (7), to corporation that has refused to supply goods to a person at a certain price or give credit or discount to a certain custom on the basis of his refusal or failing to agree with that corporation on the issue of acquiring certain other services from another particular supplier who has no relation to the first supplier.

            Prohibition of third line forcing S 46 (10) is only in effect if it is likely to result to restricting competition in a substantial way. In (10A), it does not apply to situations where such a corporation has given notice to the commissions or is a trustee or seeking to carry out a legal order or when the two corporations are related to each other. Article 81 of the EU prohibits undertakings or agreements meant to control or limit, or fix prices or that seeks to allocate trading conditions that are similar across the board and hence might result in according some corporations or individuals preferential competitive treatment. It also prohibits both vertical and horizontal arrangement that seeks to put conditions on purchases or supplies such that by entering into one arrangement, the buyer ends up entering into an additional one. It also includes setting of conditions in the share market where either shares or goods are given conditions not to be supplied or re-supplied to a certain group of people. It also prohibits uneven application of trading deals such as discounts, blacklisting or labeling some as more favorable than others.

            The Sherman Act section 1 and Clayton Act section 3 also espouses the same. Section outlaws any contract or arrangement that conspires to affect negatively commerce through unreasonable practices. It is against what it refers to trying arrangements, this is where suppliers puts conditions to the customer that ensures that in purchasing their supplies, they have also to purchase other goods and services from another unrelated supplies. In exclusive dealings it outlaws deals between suppliers and buyers that tends to restrict the buyers from purchasing any supplies from a competition.

Price discriminationSherman and Clayton Antitrust Act section 3 prohibits among many other things exclusive dealing, mergers that will in the long run affect competition as well as price discrimination.

Section 49 on price discrimination seeks to prohibits arrangement by corporation that seeks to set dissimilar trade conditions to the various customers or prices that are discriminating to the suppliers. This section however was repealed in 1995 through a recommendation by the Hilmer report in the argument that in the long run it was restricting setting of competitive prices and was a detriment to the economy. It was repealed due to its redundancy as what it sought to accomplish has been covered by section 45 and 46

            Robinson Pat man Act 1936 outlaws any practice by corporations to provide varying prices, credit or discount to their customers. Article 81 (c) of the EU treaty is also against dissimilar trade conditions but gives an exemption where such a practice will not have an impact on competition. The Clayton Antitrust Act (1914) sec 13, outlaws any practice that seek to discriminate prices among the customers both in the states within America or in foreign countries as long as such a price discrimination will result into a reduced competition in the market. However, that provision is only to be instituted within 4 years upon the action.

Mergers and acquisitionsSection 50 and 50A outlaws any action of any corporation buying shares or merging with another one if there are reasonable grounds to believe that such an acquisition or merger can in any way lead to lessening of competition in nay particular industry. In establishing the above, it becomes important for the court to evaluate whether a few conditions are present. It will look at the dynamics in the market, how dominant the resultant business entity will be after the merger or the acquisition, barriers that have been erected to deter entrance of new firms into the business as well as the extent of profitability the new corporation will have over the existing ones.This provision further extends into acquisition and selling of shares where it prohibits an individual from being elected or nominated directorship in any two firms whose nature of business is that the two are competing against each other.

The EU provisions on mergers [8]also seek to restrict mergers and acquisitions that in the long run will result into introduction of restrictive tendencies in the market. That is the basis for consideration, to see whether a merger can result into lessening competition. This section also seeks to protect competition within the member states and will outlaw any action geared to restrict this. According to this section, this prohibition is limited to corporations possessing a dominant position in the market; hence it becomes important that the commission take into account the extent of dominance of the merging firms.

Clayton act section 7,prohibits any acquisition of shares of a company where that purchase will have a net effect of restricting competition by producing an imbalance in the market .The acquisition through a proxy is also prohibited if in an way end up impacting negatively on commerce. However purchase of such shares is allowable after the federal trade commission is amply satisfied that that acquisition is for investment only and in no way is it to be used in influencing the voting pattern.

Misuse of power.

            As mentioned before, the TPA makes a clear statement on its position on the prohibition of abuse of misuse of corporation dominance in the market. Article 82 of the EC treaty prohibits any action by dominant corporations or market leaders in the common market that in any way restricts supply of goods or technology, price discrimination among others. Sherman Act section 2 also prohibits forms form engaging in uncompetitive tendencies to lord its authority over others and spells out its penalties appropriately.

            In the Sherman act, if the court is satisfied that a corporation has discretionally misused its dominance in the market to gain advantage over others then this form will be regarded to as anticompetitive and is liable to a fine or any other penalty the court will deem fit unless the corporation is able to provide further evidence that will compel the court to think otherwise, this will be by the corporation in question providing evidence of its pro competitive actions enough to counter the laid allegations(Denckere R.,1984).

            Section two also touches on prohibiting actions carried out by a corporation with an intention of providing substandard goods to the consumers, and when that business is close to a monopoly such an action is considered predatory especially if the business entity was conscious of the act and does not make any effort to retract or compensate the consumers involved. According to Sherman Act section two, predation is when a business entity with a dominant position in the market, maliciously incorporates its actions, a practice that seeks not to maximize its gains or profits in the market, but rather such actions are only meant to push other firms out of business. It can also include instances where a dominant business entity uses undue influence and manipulations aimed at making the business rivals not to engage in the competitive practices that are perceived as a threat to its dominant position[9].

If a firm hence is found to be engaging in predatory practices it is liable to a fine or any other action the court may deem fit. Section 46 of the Trade Practices Act defines misuse of dominant power by a business entity as when such a business entity engages in practices that see it take and have undue advantage over others in the risk with the purpose and intent of lessening competition or driving others out of business. It also involves erecting barriers of entry into the industry and the market by engaging in restrictive trade practice.

For Australian courts, in determining whether a business entity indeed has dominance in the market and has used such authority in the market to gain unfair competitive advantage, it will look at the size of the industry and the intensity and level of competition characterizing such a market. This is meant to establish whether indeed that business entity is a dominant player and hence capable of employing predatory tactics. In analyzing such a practice, the court According to section (4A), will inspect that specific conduct. It will for example analyze why a certain company is providing services or goods to consumers at a low price and try to rationalize on the findings after putting into consideration all evidences in the table.

Authorization remedies and procedureAuthorization is where a business corporation purporting to represent other business organizations in the same industry applies to ACCC for permission to engage in competition restrictive tendencies that are under normal circumstances restricted by the Trade Practice Act. A business entity may ask to be authorized to engage in price fixing, mergers, secondary boycotts among other unrestricted practices. Authorization is not common place in Australia but in the rare instances when it occurs ACCC has to be convinced in certain terms that the authorization if granted will exclusively be to the benefit of the general public and that the perceived benefits of the authorization substantially outweighs the resultant costs and losses.

Under no terms however can the ACCC grant authorization to a corporation if it is within reasonable grounds believing that such an authorization will in the end, end up in the corporate misusing its powers for its own benefits. The basis for authorization emanates from the believe that such an authorization stands to the interest of the public. It is also in the belief that the resultant gains are not surpassed by the likely costs of the practices. Authorization hence cannot be used as a defense by a company that has engage in abuse of its dominant position to exploit other players in the industry or the public. This is in subsection 46(b), which says that authorization cannot be granted if it is established that a certain practice that a corporation seeks to engage in contravenes the rest of the provisions in the act.

The European             commission competitive laws also touch on authorization. It predominantly focuses on mergers and their role in perpetrating anti-competitive tendencies. The commission upon finding there are reasonable grounds, for example, for mergers may grant authorization if competition in that particular industry will not be distorted. Unlike the ACCC, the European commission does so after a strenuous procedure. Most the authorization in the EU is done conditionally. It is done so after the firms have fulfilled certain pre set conditions and not necessarily on the measure of the extent of public good[10].

In section 95 AC of the TPA the commission may in no uncertain terms grant a go ahead to a merger if it is not adequately satisfied that such a merger is not a detriment to the public interest or that it will not impede competition. Acquisitions and mergers can only take place if the conditions that have been set by the Trade Practices Act have been appropriately fulfilled. In the process of authorization, should the set tribunal feel that the set conditions for an authorization have not been met, it will within 5 working days upon having recovered the notification and application for the authorization, communicate to the applicants informing him/her that the application was not valid and give appropriate reasons consequently, in accordance with section 95 AW.

In reaching its decision on whether to grant an authorization, the tribunal may require the applicant to furnish it with the relevant information limited to a specific period of time. It may also decide