By Kathryn Edghill, Partner, Peter Hodges, Partner, and Graham Maher, Research Assistant
As the Covid-19 crisis continues businesses around Australia are being forced to adapt to deteriorating economic conditions and what seems to be ever-changing laws and regulations. In these uncertain times, however, one thing is certain, which is that the Australian Competition and Consumer Commission (ACCC) remains focused on its role of promoting competition and fair trading, including ensuring that businesses do not engage in illegal anti-competitive conduct.
While recent action taken by the ACCC in allowing supermarkets and banks to cooperate with their competitors demonstrates that it may be prepared to adopt a pragmatic approach to current conditions, there is no doubt that it still has its hands firmly on the tiller of competition law, and will not turn a blind eye to businesses who engage in collusive or anti-competitive behaviour including because of the Covid-19 crisis. In this article we look at ways in which businesses can legitimately respond to some of the challenges posed by current conditions without falling foul of competition laws.
What types of cooperation can breach competition laws?
Agreements, arrangements or understandings between competitors which have the purpose, effect, or likely effect of:
- fixing, maintaining or controlling prices for goods supplied or acquired by any of them;
- sharing the market, whether in terms of customers, suppliers, products or territory;
- rigging a bid or tender;
amount to illegal cartel conduct, which carries with it potential penalties of up to $10 million, three times the value of the benefit gained or 10 per cent of annual turnover for companies and penalties of up to $500,000 and 10 year jail terms for individuals involved in the conduct.
This means that, while it may seem to make rational economic sense in these uncertain times to join with businesses in like situations to reduce costs by jointly acquiring products or services or to agree on pricing (whether it be maintaining existing prices or increasing or decreasing them), the risks of doing so could be catastrophic. It is worth noting that cartel enforcement is an enduring priority for the ACCC and one in which the size of the businesses involved is largely irrelevant. The ACCC is as likely to take action against a small family run business as it is against a large multinational company.
But surely the ACCC will turn a blind eye in the current circumstances?
The answer to this is a resounding “no”. In fact, it is the opposite. The ACCC has set up an internal taskforce whose role is to identify and take action against businesses who are engaging in “misconduct associated with Covid-19”. That is a broad remit and one which undoubtedly encompasses illegal cooperation between competitors. That said, the Chairman of the ACCC, Rod Sims has recognised the role which the ACCC will need to play in preserving industrial capacity for the future when the Covid-19 crisis ends and has expressed willingness to assist businesses where appropriate.
The ACCC‘s role is facilitated by a number of existing processes which allow it, on application by the relevant party or parties, to authorise conduct which would otherwise breach competition laws. Those processes include applications for authorisation and notification of conduct where the ACCC determines that the public benefits outweigh the anti-competitive detriment of the conduct involved. Conduct which can be authorised include collective bargaining (with simpler notification processes for small businesses) and other forms of cooperation.
What does this mean if you want to cooperate with a competitor?
For those competitors wishing to cooperate, some important things to bear in mind are:
- authorisation or notification must be sought and obtained before engaging in the conduct. The ACCC cannot retrospectively authorise illegal conduct, so businesses wishing to take advantage of the authorisation and notification process need to act swiftly;
- the onus lies on the parties concerned to establish to the ACCC’s satisfaction that the conduct should be authorised – the assistance of lawyers and economists or industry experts will likely be required to ensure that this can be done and to avoid requests for further information which can delay the process;
- authorisation will be limited in time, and, in the case of the current situation, that timeframe is likely to be weeks, or months rather than years – in other words, no more than is absolutely necessary;
- the conduct will need to be able to be quickly and easily unwound when the need for authorisation comes to an end, which means businesses need to be careful to ensure that the authorised conduct can be isolated and cleanly severed from the ongoing conduct of the business, post termination of the authorization. For example, shared information should be quarantined and available only to those with a need to know and should be deleted once authorisation comes to an end;
- the ACCC will be more likely to allow cooperation in terms of the supply chain and logistics, than it will be to allow cooperation in terms of pricing, even if that means a financially tougher time for business. Its role is to protect and promote competition, not to protect business.
Is there anything else that business should be aware of when dealing with competitors in the current situation?
Not all competitors when faced with the current situation are resorting to cooperation. For many, it will be competition as usual, which can include the opportunity to take advantage of competitors’ weaknesses. The ACCC takes seriously any conduct aimed at competitors which is designed to ensure a lessening of competition, particularly by businesses which hold a substantial degree of power in a market and will investigate whether it breaches the prohibition on misuse of market power. Similarly, conduct which is unconscionable when directed by a larger business to a smaller business may also breach competition laws.
Need help with your competition law requirements?
In these uncertain times, staying on the right side of the dividing line between fair competition and illegal conduct has never been more important. Please feel free to contact our Competition, Regulatory and Risk team whose details appear below should you require assistance.