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Parliament passes significant amendments to New Zealand's competition law framework

Home Insights Parliament passes significant amendments to New Zealand's competition law framework

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Contributed by: Troy Pilkington, Bradley Aburn, Petra Carey, Lina Kim and Phoebe Murray

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Published on: March 31, 2022

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Yesterday, the Commerce Amendment Bill (Bill) passed its third and final reading in Parliament. The Bill will, therefore, become law upon receiving Royal assent (which is expected to occur shortly), and will introduce significant changes to New Zealand's competition law framework in the Commerce Act 1986 (Act).1 

Most notably, the Bill will: 

  • overhaul New Zealand's existing misuse of market power prohibition by replacing the "purpose-based" test with the Australian "purpose and effects-based" test; 

  • repeal all specific intellectual property (IP) exceptions; and 

  • expand the cartel prohibition to land covenants. 

These key changes will come into force 12 months after the Bill receives Royal assent.

The implications of these changes are summarised as follows.
 

Change to the Commerce Act

Implications for your business

New misuse of market power test
The existing misuse of market power test focuses on whether a business with market power engages in conduct that (a) it would not engage in if it did not have market power, and (b) with an anti-competitive purpose.
 
That will change to being a prohibition on a business with a substantial degree of market power engaging in conduct that has the purpose, effect, or likely effect of substantially lessening competition.
It will no longer be sufficient for a business to self-assess its conduct on the basis that (a) it would have done the same in a competitive market, and (b) it does not have an anti-competitive purpose.
 
If you are involved in a business with market power, when making business decisions, going forward you should ensure that you not only consider the purpose of your business's conduct, but also the potential effects on the market in question (including by forecasting how market dynamics may develop over time).
Repeal of IP exception
All specific exceptions for the granting/enforcement of IP rights will be repealed. If you are involved with a business that licences its IP, in particular a business that could be said to have market power, in making IP licensing or enforcement decisions, you should ensure that you not only consider the purpose of the conduct under consideration, but also the potential effects on the market (including by forecasting how market dynamics may develop over time).
 
Also, you should closely review any IP licensing arrangements with competitors (including patent and trademark settlements and arrangements to cross-licence) as such arrangements will potentially be at greater risk under the cartel prohibition.
Expansion of the cartel prohibition to land covenants
The cartel prohibition will be expanded to also apply to land covenants (not just contracts, arrangements, or understandings) that fix prices, allocate markets, or restrict output between competitors. Even if your business has legitimate reasons for imposing a covenant on land (such as for environmental or land restoration reasons), take specific Commerce Act advice before giving, or requiring the giving, of a covenant in the context of a sale of land to a competitor (including to consider whether one of the other exceptions could apply).
 
Furthermore, if land that is subject to a covenant is subsequently purchased by a competitor, take specific Commerce Act advice before taking any steps to enforce adherence to the terms of the covenant against that competitor.

Other key amendments

In addition, the Bill will introduce a number of other reforms (the first of these will come into effect 12 months after Royal assent, and the rest one month after Royal assent):
 

  • Expansion of the Commission's powers to grant authorisation to cartel arrangements and market power conduct: The Commission will obtain the power to grant authorisation for all restrictive trade practices, including any conduct that would otherwise be subject to the misuse of market power prohibition and cartel prohibition (due to legislative oversights in previous amendments it was arguable whether the Commission had the power to authorise cartel arrangements – with that issue currently being resolved through a temporary "patch" contained in COVID-19 related legislation). 

  • Expansion of the Commission's powers to grant "provisional" authorisation: The Commission will gain the power on a permanent basis to grant "provisional" authorisation (i.e. interim authorisation) for restrictive trade practices while its full decisions are pending (currently it only has that power on a temporary basis through a temporary "patch" while the COVID-19 pandemic continues).  

  • Higher penalties for anti-competitive mergers and acquisitions: The maximum pecuniary penalties for anticompetitive mergers and acquisitions will increase from $5 million to the greater of $10 million, or three times the commercial gain or 10% of turnover (so that such penalties are the same as for a breach of the restrictive trade practice prohibitions of the Act). 

  • Wider information sharing powers for Commission: The Commission will gain additional powers to provide any public service agency, statutory entity, the Reserve Bank of New Zealand or the New Zealand Police (Agencies) any information or copies of documents that the Commission holds that it considers may assist those other Agencies perform their roles (provided it does not undermine the Commission's functions – which should provide protection for information it receives via immunity/leniency applications).  

  • Increase in the number of Commissioners: The maximum number of Commission members will increase from six to eight.

Overall, the Bill will introduce significant changes to New Zealand's competition law framework, and will no doubt affect many business decisions and strategies. If you or your business would like to discuss the implications of these changes so you can prepare, please get in touch with one of our experts below.

 

FOOTNOTES
  1. As addressed in our previous alert.

 

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