Exploring Opportunities: Managing competition issues whilst allowing businesses to collaborate (Australia)

The COVID-19 pandemic has resulted in a rush of applications to the ACCC seeking to  authorise coordination as between competitors which might otherwise contravene provisions of the Competition and Consumer Act (CCA).

The ACCC has responded quickly and dedicated significant staff to assess these applications. As of 8 April 2020, the ACCC has made 16 COVID-19 interim authorisation determinations. More will follow.

In granting interim authorisations, the ACCC has recognised that it may not be possible for applicants to be precise about the conduct which is to be authorised, given the uncertain nature of the pandemic and the benefits associated with speed and flexibility.

While each application will be considered on its own merits, ACCC practice to date demonstrates that the ACCC is prepared to authorise broadly described conduct where the parties must notify the ACCC of agreements entered into under the terms of the authorisation and respond to future ACCC requests for information. As a result, the ACCC will continue to have a central role in determining the scope of arrangements as between competitors to address supply chain, logistics and resource availability and consumer relief efforts arising from the pandemic.

This update provides an overview of the ACCC’s current approach to COVID-19 authorisation applications, as well as other ways in which competition law risk for industry coordination might be managed. It also provides guidance on how to approach industry discussions prior to any authorisation decision of the ACCC.  

Overview

Businesses that would ordinarily compete with one another, and now seek to coordinate their responses to the COVID-19 crisis, may risk contravening Australia’s cartel laws. For example, coordination in relation to trading hours, supply chain management, or reductions of capacity could potentially constitute prohibited cartel conduct.

However, the ACCC can authorise coordination between competitors where the public benefits of coordination outweigh any potential public detriments (typically, any loss of competition). Authorisation provides competition law immunity for the relevant conduct. Importantly, the process allows the ACCC to grant interim authorisation which will allow parties to proceed with the proposed conduct prior to the ACCC making a final authorisation decision. 

In the wake of COVID-19, the ACCC has acted swiftly in granting requests for interim authorisation across a range of sectors, including banking, insurance, supermarkets, medical technology, pharmaceuticals, regional aviation, and telecommunications.

The ACCC is to be commended in acting quickly (within days and sometimes less) in granting the interim authorisations, allowing businesses to coordinate between each other for the public benefit, without delay. The ACCC’s approach to granting interim authorisations is unprecedented in the breadth of conduct that has been authorised and the central role that the ACCC will continue to play in approving and monitoring the responses of businesses to the pandemic.   

In commenting on the ACCC’s approach to coordination between businesses in response to the pandemic, ACCC Chairman, Rod Sims, has stated “At a time of crisis such as in war or with a pandemic, where there is a common enemy to fight for the nation’s survival, and so a sense of national purpose, co-ordination is both efficient and carries little or no downside.”¹ However, he has also warned that such measures can, in normal times, lead to complacency, inefficiency and higher prices.

Review of authorisations granted to date

As of 8 April 2020, the ACCC has granted 16 COVID-19 interim authorisations covering a broad range of sectors and conduct. These are summarised in detail below and in the table at the end of this Update.

(a) A broad range of public benefits have been accepted

The interim authorisations can be grouped based on the public benefits sought to be achieved through the coordination. These public benefits include:

• Facilitating the supply of essential products: a number of interim authorisations have been granted to facilitate the supply of essential products to consumers, businesses and healthcare providers. For example, one of the first COVID-19 related interim authorisation decisions facilitated supermarkets coordinating the supply and equitable distribution of essential every day goods. Since then, broad authorisations have been granted across a range of sectors, for the purpose of facilitating the supply of essential products. These sectors include, energy, fuel, medical equipment suppliers, hospitals and healthcare facilities, pharmaceutical wholesalers and telecommunications providers.
• Facilitating the distribution of consumer and business relief: the ACCC has granted immunity to allow coordination between businesses designed to facilitate the provision of pandemic related relief to consumers and businesses. For example, banks have been authorised to coordinate activities in relation to the provision of small business debt relief packages, modification of loan facilities for customers and to support Government fiscal stimulus initiatives. Similarly, insurance providers have been authorised to implement relief measures for small businesses and consumers; and shopping centre landlords have been authorised to share information on financial difficulties of tenants and provide rent relief to small and medium enterprise tenants.
• Ensuring that competition will be maintained in post-pandemic markets: the ACCC has also been prepared to authorise coordination between businesses for the purpose of maintaining their commercial viability, thus ensuring that competition will be maintained in post-pandemic markets. In particular, domestic airlines have been authorised to coordinate schedules, capacity, and share revenue, on 10 key regional routes. While it is difficult to predict the circumstances in which the ACCC would be prepared to authorise similar conduct in other industries, the public benefits are most obviously available in concentrated industries with high barriers to entry or sectors that provide a critical community service. In these circumstances, the public benefits of maintaining such industries through the pandemic are likely to be more readily apparent.

(b) Appropriate flexibility in ACCC approach

As a general proposition, the ACCC, in considering any authorisation application, will want to have a clear understanding as to the scope of the proposed conduct. Authorisation is therefore most likely to be granted where the parties can be as specific as possible regarding the exact scope and nature of any coordination agreement including, for example, setting out the terms of a draft agreement.  

In the context of the COVID-19 interim authorisation applications, the ACCC has taken a more flexible approach while maintaining an ongoing oversight role. While each matter will be assessed on its individual facts, the ACCC has, in current circumstances, provided parties with an appropriate degree of flexibility in determining the final scope of any coordination.

For instance, the supermarkets have been authorised to engage in conduct recommended by the Supermarket Taskforce convened by the Department of Home Affairs or the main working sub-committee of that task force. Importantly, meetings of these groups will include ACCC representatives who will have the ability to raise competition law concerns.

Whilst other interim authorisation decisions may not contemplate a committee like structure, conditions of authorisation include reporting obligations to the ACCC in terms of the agreements or decisions made under the interim authorisation, as well as requirements to respond to ACCC information requests. In circumstances where the ACCC can take steps to revoke any interim authorisation decision, this effectively creates an ongoing role for the ACCC in considering and assessing industry response to the pandemic.

The flexibility contained in the authorisation decisions of the ACCC is reflective of the unprecedented and uncertain nature of the pandemic. The ‘trade-off’ for this flexibility is that, in many cases, the ACCC has included conditions that provide it with an active monitoring and oversight role in relation to the coordination between the parties concerned.

(c) Limitations on authorised conduct

While seeking to be flexible in its approach, the ACCC will continue to assess applications by reference to the net public benefits test. As such, there must be a clear link between the proposed conduct and the relevant public benefits.

To the extent that coordination goes beyond what is demonstrably necessary to achieve the identified public benefits, this is unlikely to be approved by the ACCC.

The ACCC is less likely to authorise conduct which contemplates price fixing. A number of ACCC decisions to date specifically note that parties will continue to compete in respect of the pricing of relevant retail products. Whilst the domestic airline authorisation contemplates revenue sharing over relevant routes, the ACCC has sought to ensure a level of consumer price protection by imposing a condition that participating airlines must not set a fare which is higher than that specified in their respective fare schedules.

(d) Period of authorisation

Parties have sought authorisation for a period of 6-12 months. Current interim authorisations provide legal immunity for an undefined period (ie until the ACCC releases its final determination or until the ACCC revokes its interim authorisation). The ACCC considers the temporary nature of these authorisations to be unlikely to materially impact competition.

The ACCC will maintain the ability to revoke any authorisation decision if the effects of the pandemic subside at an earlier date. In such circumstances, it is likely that parties would inform the ACCC that the authorisation is no longer necessary and would seek to voluntarily revoke any authorisation.

Approaching the ACCC for authorisation

Businesses considering application for authorisation should proactively engage with senior representatives of the ACCC in relation to proposed coordinated conduct prior to submitting a formal authorisation application. The ACCC has sought to comment on draft applications within a very short period. Active prior engagement with the ACCC will assist in a timely consideration of the authorisation application and be more likely to result in a positive decision.

While the predominant approach of businesses to date has been to seek an interim authorisation, this is not the only option available to businesses seeking to pursue coordinated responses to the current crisis. Depending on the circumstances, alternatives could include:

• Self-assessing legal risk including under the joint venture exception: some forms of coordination may not raise sufficient ACCC risk to require authorisation. In addition, there is an exception to cartel laws for conduct that is for the purposes of, and reasonably necessary for, joint activity between parties. Parties are required to ‘self-assess’ whether this joint venture defence will be available – unlike authorisation, it is not something granted by the ACCC.  
• Seeking a legislative exemption: conduct specifically authorised under state or federal legislation or regulations will be exempt from the competition laws. State legislation or regulations will only provide an exemption within the relevant state. Timing issues around the passing of legislation will mean that authorisation will be a preferred route. However, where appropriate regulations may be made under existing legislation, this route might be considered. In theory, a relevant government may be willing to provide legislate for broader and more open-ended forms of competitor collaboration than the ACCC would be comfortable authorising.
• Obtaining a benefit under a class exemption: since 2017, the ACCC has the power to grant class exemptions for specific types of business conduct that it considers are unlikely to substantially lessen competition, or are likely to result in a net public benefit. Where a class exemption is in place, businesses can then self-assess whether their proposed conduct falls within the scope of the exemption. There are currently no class exemptions in place. Depending on the length of the pandemic and the ACCC’s views regarding the efficacy of the authorisation process, the ACCC might consider the use of COVID-19 class exemptions.

In the context of exploring potential coordination with competitors, businesses must remain alive to their obligations under competition laws.

Without authorisation (or another exemption or immunity in place), businesses should not reach any sort of agreement with competitors (even if informal or unstated) about matters such as pricing, output, or other aspects of their commercial activities, prior to having assessed the competition law risks of doing so. The fact that such discussions are facilitated by government or industry bodies will not provide protection from the application of competition laws.

In considering discussions with competitors, including in the context of a potential authorisation application, businesses should:

• make it clear that any arrangement will be subject to legal sign off;
• set and adhere to agreed agendas;
• keep preliminary discussions at a general level and avoid disclosure of competitively sensitive information;
• document any proposals as being subject to legal advice; and
• where possible, include legal representatives in discussions.

Detailed summary of COVID-19 interim authorisations 

Please find below a detailed summary of COVID-19 interim authorisations by sector.

Coordination for the purpose of facilitating the supply of essential goods and services

Grocery

Medical technology

Pharmaceutical Services

Telecommunications

Energy

Medicines

Fuel

Healthcare (Hospitals)

Coordination for the purpose of facilitating the supply of emergency relief

Banks

Insurance

Retail shopping

Insurance

Securitisation

Coordination for the purpose of maintaining competition in post-pandemic markets

Domestic airlines

Endnotes

1. https://www.accc.gov.au/media-release/competition-will-be-key-to-driving-economic-recovery.