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Commerce Amendment Act - Stronger regulation for largest businesses

Written by Darryl King, PARTNER; David Alizade, PARTNER on April 12th, 2022.

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Competition law amended to deter anti-competitive conduct by New Zealand's largest businesses

April 2022

Reforms to deter anti-competitive conduct by New Zealand’s largest businesses have been passed, including:.

strengthening New Zealand’s prohibition on businesses with substantial market power taking advantage of that power
repealing safe harbour provisions protecting some intellectual property arrangements from competition law scrutiny
expanding the cartel prohibitions to land covernants
increasing the maximum penalties for anti-competitive mergers and acquisitions
other changes to improve the functioning of the Commerce Act and the Commerce Commission

New Zealand has a small economy that often has markets dominated by a small number of large competitors. Those businesses will need to consider not only the purpose of their conduct but also the potential effects on the relevant market(s).

Set out below is an overview of the changes.

what are the changes?
The Commerce Amendment Act 2022 was passed into law in April 2022. The Amendment Act makes changes to the Commerce Act 1986 that will impact on businesses with substantial market power in New Zealand. The key changes will come into force on 5 April 2023 (with other changes coming into force in May 2022).

new misuse of market power test
The key change is a new “misuse of market power” test that seeks to strengthen the current prohibition on businesses with substantial market power taking advantage of their market power (section 36 of the Commerce Act). The new test removes the focus on the intention of the business, and aligns with the equivalent prohibition in Australia. The new test uses an “effects” based test that already operates in other parts of the Commerce Act.

The new test prohibits a business with a substantial degree of power in a market from engaging in conduct that has the purpose or effect (including the likely effect) of substantially lessening competition in:

that market; or
in any other market the business (or a connected business) currently operate in or are likely to operate in in the future.

New Zealand has a small economy that often has markets dominated by a small number of large competitors. Businesses with market power will need to consider not only the purpose of their conduct but also the potential effects on the relevant market(s) before making commercial decisions.

The new test comes into force on 5 April 2023. However, it will apply to arrangements entered into before that time. Affected businesses should begin preparing for the amendments.

what are examples of misuse of market power?
The Commerce Commission provides the following examples of behaviour that could be a misuse of market power:

“Predatory pricing – where a business lowers its prices below cost for a sustained period of time to drive competitors out of the market, with a view to increasing prices in the future
Refusal to supply – where a business refuses to supply a competitor
High access pricing – where a business operating at more than one level of the supply chain charges a competitor higher prices for an input or access to the infrastructure needed to compete in downstream markets where the supplying business also operates
Exclusive dealing – where a business has contracts with retailers or distributors that only allow them to sell its products
Tying - where a business only sells a product if the customer purchases it together with another product
Conditional discounts - where a business offers customers a discount if they meet certain conditions.”

repealing intellectual property safe harbour provisions
The exceptions in the Commerce Act for the granting or enforcement of intellectual property rights will be removed from 5 April 2023. This means that intellectual property arrangements will be subject to competition law rules, including cartel rules for arrangements with competitors.

expanding cartel provisions to land covenants
The Commerce Act broadens the definition of cartel behaviour to include land covenants. These rules will apply to the original grant of the land covenant and steps being taken to enforce a land covenant against a competitor who subsequently purchases the land.

other changes
Other changes include:

increasing the maximum penalties for anti-competitive mergers and acquisitions
other changes to improve the functioning of the Commerce Act and the Commerce Commission

further information
For further information please contact your usual JR adviser or one of the JR team listed below.

Disclaimer: The information contained in this publication is of a general nature and is not intended as legal advice. It is important that you seek legal advice that is specific to your circumstances.

All rights reserved © Jackson Russell 2022

Contact

Darryl King,
PARTNER

David Alizade,
PARTNER

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