Introduction
This submission is in relation to s46 Trade
Practices Act 1974.
Prior to and since the announcement of this review there
has been considerable discussion over the terms of and application of
s46. There has been a well-publicised debate as to whether s46
should be retained in its current form or amended to incorporate an effects
test.[1]
While this debate is useful, it distracts from the more
pertinent question -what is the law intended to do (which reflects
its economic and policy objectives), and whether s46 in its current form
accurately reflects that law and by implication those objectives. As Bork said:
“Antitrust policy cannot be made rational until we are
able to give a firm answer to one question: What is the point of the law – what
are its goals? Everything else follows from the answer we give….Only when the
issue of goals has been settled is it possible to frame a coherent body of
substantive rules.”[2]
The committee’s assessment of s46 should adopt a similar
principled approach. It is important to understand the foundations
for and the current state of the law before we are in any position to formulate
an appropriate response. It should not simply translate into a choice between
one or other models presented in the debate.
It has been argued that the Australian law on
monopolisation should be brought into line, among other things, with the
position in the United States. It is best to consider this proposition in the
context of the United States law on monopolisation. This is the purpose of the
submission. What emerges is that it is not at all obvious that one or other
models for s46 will bring our law into line with the U.S. Such a proposition is
far too simplistic.
The policy rationale for the monopolisation offence
Antitrust policy is capable of delivering a number of
policy outcomes which include the promotion of competitive processes, economic
performance and wealth distribution.[3] We
may argue about the primary goal of competition law, however the promotion of
economic efficiency and the maximisation of consumer welfare certainly feature
prominently.
Section 46 is modelled on s2 Sherman Act 1890.
The history of the Sherman Act indicates a policy intention of promoting consumer
welfare. [4] It
has been suggested that “competition” is a short hand way of expressing a state
of affairs in which consumer welfare cannot be increased by moving to an
alternative state of affairs through judicial decree.
Conversely monopoly would be employed to describe a
situation where consumer welfare could be improved. Under conditions of
monopoly, output is reduced and prices are higher compared to a more competitive
environment. The ill effects of monopoly include allocative efficiency losses
and wealth distortions. [5] Therefore
to monopolise (and the offence of monopolisation) is to use practices inimical
to consumer welfare. [6]
The offence of monopolisation under the US law is at
least intended to prohibit no more and no less than those practices that
violate this policy directive. No more, because an unnecessarily restrictive
application of the law will stifle innovation, investment and legitimate
behaviour and contribute to the very inefficiencies it is intended to overcome.
No less, because it is conducive to the policy outcome.
The monopolisation
offence
Section 2 Sherman Act 1890 provides that
every person who shall monopolize or attempt to monopolize or combine or
conspire with any other person to monopolise will be guilty of a violation. The
section therefore establishes three separate offences – actual monopolisation,
attempted monopolisation and conspiracy to monopolise. The elements of each
offence are different.
The offence of actual monopolisation comprise two
requirements:
- the possession of monopoly power in a relevant
market; and
- the wilful acquisition or maintenance of that power
as distinguished from growth or development as a consequence of a superior
product, business acumen, or historic accident.[7]
Liability for actual monopolisation requires that it be
established the defendant used anticompetitive methods to achieve or maintain
its position. [8]
It is said that if the evidence reveals a significant
exclusionary impact in the relevant market the conduct will be labelled
anticompetitive unless the defendant comes forward with specific,
pro-competitive business motivations that explain the full extent of the exclusionary
conduct.[9] Similarly
proof that a profit maximising firm took predatory action is said to
demonstrate the threat of substantial exclusionary effect.[10]
In United States v Microsoft Corporation Jackson
J accepted the view that the defendant’s conduct must be shown to be
exclusionary – that is, whether it has restricted significantly, or threatens
to restrict significantly the ability of other firms to compete in the relevant
market on the merits of what they offer customers.[11]
Many synonyms have been used to describe the wilful
nature of the defendants conduct. However it begs the question whether the
defendant has acted lawfully (that is aggressively or competitively) and not
unlawfully, that is monopolised. Expressions such as “exclusionary”,
“predatory” and so on are no more that convenient shorthand means of expressing
this distinction. Establishing aggressive competitive behaviour from a misuse
of market power is at the heart of the dilemma.
The early United States decisions referred to intent as
the basis for identifying monopolisation. In Standard Oil, White
J said that the prima facie presumption of intent to restrain trade was
evidenced by the elements of the defendants behaviour.[12] In Griffith the
court said that:
“ It is not…. always necessary to find a specific intent
to restrain trade or to build a monopoly in order to find that the anti-trust
laws have been violated. It is sufficient that a restrain t of trade or
monopoly results as the consequence of a defendant’s conduct or business
arrangements.”[13]
However intention has been said to be relevant, not
because it proves or disproves specific conduct, but because knowledge of
intent may help the court to interpret facts and to predict consequences. [14] The
best that may be said of it is that it is simply part of the evidence which the
court will consider. Alone it is not a necessary or sufficient condition for
liability.
Areeda and Turner have said that the benefits of conduct
will not be apparent or persuasive unless the defendant identifies his purpose
in acting, shows the legitimacy of that purpose in terms of antitrust
objectives and suggests that the challenged action is an appropriate and
perhaps the least restrictive way of achieving that legitimate purpose. [15]However
as the authors point out, it is the nature and consequences of a particular
practice that is the vital consideration, not the purpose or intent.[16]
The reason is that action that damages or drives out a
competitor is “intended” by the company as the natural result of its efforts.
It is no more useful a test for determining whether the conduct is legitimate
or prohibited and is analytically limited:
“ but to so read “purpose or intent” would be to read the
behaviour requirement out of the monopolisation offence altogether and make
monopoly unlawful per se…The short of it is that talk of “purpose or intent” is
largely diversionary or redundant.”[17]
It has therefore been said that the emphasis should be on
conduct not intent:
“ …in defining the behavioural component of the
monopolisation offence, one must concentrate on conduct and define the
characteristics of conduct that are undesirable. Despite loose language, this
is in fact what the courts have attempted to do. They have focussed on conduct
while talking about intent.”[18]
The distinction is important because documentary evidence
that a company is proposing to take action to drive out a competitor or to
seize market share does not of itself establish the economic evidence necessary
to establish the offence. In Ball Memorial Hospital v
Mutual Hospital Insurance Inc, Easterbrook J said that
intent to harm rivals without more offers too vague a standard because vigorous
competitors intend to harm rivals.[19]
A point of distinction between the U.S and Australian law
is the use in the U.S of juries. The consequence is that intent, and proof of
intent through various “smoking gun” documents takes on a far greater
significance. This is not because the offence requires it, but rather because
it may be crucial in influencing the jury’s perception of the defendant and tip
the balance in favour of the prosecution:
“ Lawyers rummage through business records seeking to
discover tidbits that will sound impressive (or aggressive) when read to a
jury. Traipsing through the warehouses of business in search of misleading
evidence both increases the costs of litigation and reduces the accuracy of
decisions.”[20]
Therefore in the case of actual monopolisation, if a
company has exploited its market position there is arguably no separate need to
establish intent as this may be assumed from its behaviour. [21]
In the United States monopolisation may also require the
demonstration of some reprehensible behaviour against a competitor. [22] Conversely
evidence by the defendant of valid business reasons for the conduct is a
defence.[23]
Actual monopolisation also requires behaviour that not
only impairs the opportunities of rivals but also does not further competition
on the merits or does so in an unnecessarily restrictive way. [24] That
is, the monopolisation offence also requires evidence that the defendant’s
action does not promote competition. It for this reason that some have
suggested that to accurately replicate the U.S law requires an amendment to s46
to emphasise the effect of the conduct on competition rather
than the purpose or intent of the defendant to harm or injure a particular
competitor.[25]
However, though intent may not be at the heart of the
offence it similarly does not follow that the test merely focuses on the effect of
the conduct. The behaviour of the defendant and the effect of the conduct are
indeed relevant considerations but do not of themselves fully articulate the
offence. As indicated, it is the nature and consequences of a particular
practice that is the vital consideration which include the components of the
offence described above. As indicated it is also necessary that the conduct
satisfy the economic basis for liability.
A further caveat in the suggestion that the Australian
law be brought into line with the U.S position on monopolisation stems from the
use in the U.S of objective tests that have no equivalent in Australia. Take
for example predatory pricing. The difficulty is to distinguish pricing which
is predatory and that which is competitive. In the U.S cost based tests have
been employed to introduce an economic measure of cost, below which
pricing is regarded as predatory or raises a presumption to that effect.[26]
Areeda and Turner postulate a test where predation is
assumed where pricing is below marginal cost or average variable cost. This
approach does not merely raise a presumption of predation but rather
conclusively establishes the offence, regardless of any explanations that may
be raised by the respondent. Posner on the other hand has suggested that long
run marginal cost raises a presumption of predatory pricing which permits other
credible explanations to be put forward by the respondent.[27]
In William Inglis and Sons Baking Co v ITT
Continental Baking Co the court proposed a two stage test involving a
shifting in the evidential burden:
"If the defendant's prices were below average total
cost but above average variable cost, the plaintiff bears the burden of showing
defendant's pricing was predatory. If, however, the plaintiff proves
that the defendants prices were below average variable costs, the plaintiff has
established a prima facie case of predatory pricing and the burden shifts to
the defendant to prove that the prices were justified without regard to any
anticipated destructive effect they might have on competitors".[28]
Recoupment is another test employed in the U.S. It
recognises that short term losses sustained during the period of predation will
be recouped by monopoly profits in the future[29] Under
the recoupment approach, it is only if market structure makes recoupment
possible that a Court needs to consider the relation between price and cost.
In Boral Beaumont J expressly
rejected the United States approach to recoupment.[30] Merkel
J expressly rejected both recoupment and the cost based tests.[31] The
reason appears to be that these tests are not relevant to the clear words of
s46. Finkelstein J also rejected recoupment and the cost based tests for a
number of reasons including because it is said that intent rather than
recoupment is at the heart of s46.[32]
The reluctance of Australian courts to employ these tests
represents a significant discontinuity in the approaches of the two
jurisdictions and makes it even more precarious to make simple pronouncements
about bringing Australian law into line with the U.S.
The position in the U.S. in relation to attempted
monopolisation is quite different to actual monopolisation. The offence of
attempted monopolisation requires that the plaintiff establish a specific
intent to monopolise and demonstrate that there is a dangerous probability that
it will achieve monopoly power. [33]As
the defendant does not possess sufficient power at the time of the attempt,
specific intent to achieve the result is an essential ingredient.[34] It
is conceivable that the distinction between actual and attempted monopolisation
has been partly responsible for the inaccurate representation of the United
States law in Australia.
Conclusion and
recommendation
This is merely a brief review of some of the facets of
the United States position on monopolisation. However it suggests that it is
far too simplistic and indeed incorrect to assert that the United States law
reflects an effects test or indeed a purpose test that focuses simply on the
intent of the conduct. The United States law incorporates features of both
elements. The reason is that otherwise the law would not reflect the identified
policy need to balance the existence of monopoly lawfully attained (and the
intent to use that monopoly position) with the unlawful attainment or use of
monopoly power having an anti-competitive effect, including an effect on
individual competitors.
Whether s46 should be retained or amended is a decision
that should be made only after considering its policy intent. There is
certainly value in examining the U.S position, as its jurisprudence has been
influential in shaping the Australian law. However in doing so it is best to
follow the principled approach alluded to in the introduction.
It is recommended that the committee not simply accept
the proposition (without first putting it to the test) that bringing
the Australian law into line with the U.S can simply be achieved by adopting
one or other model or that one or other model is an accurate embodiment of the
U.S position.
Ray Steinwall
Visiting Fellow, Faculty of Law, University of NSW
[1] See for
example A Kohler, “ A power play with only one winner”, Australian
Financial Review 11 June 2002, 71; R Steinwall “T he battle over
champions” Australian Financial Review, 4 June 2002, 70; P Switzer
“David v Goliath over Fels” Australian, 24 June 2002, 27; J
Thompson “Fights Back” Business Review Weekly, 4 July 2002, 50;
Editorial Business Review Weekly, 4 July 2002, 8; M Fenton-Jones
“Independent retail grocers back ACCC” Australian Financial Review,
9 July 2002, 49; S Marris “More power to Fels: Small business” Australian 16
July 2002; 19, P Charlton “Besting the big end of town” Courier Mail 13
July 2002, 32; K Lahey “Effects test rather ineffective” Australian Financial
Review, 10 July 2002, 55.
[3] See
Kaysen and Turner Antitrust Policy: An Economic and Legal Analysis, Harvard
University Press, Cambridge 1965, p11.
[7] United
States v Grinnell Corp 384 U.S. 563,570-571 (1966); Aspen
Skiing Co v Aspen Highlands Skiing Corp 472 U.S. 585,596 (1985).
[8] United
States v Grinnell 384 U.S. 563, 570-71 (1966); Eastman Kodak
Co v Image Technical Services Inc 504 U.S. 451, 488 (1992).
[15] Areeda P and
Turner D, Antitrust Law, An Analysis OF Antitrust Principles and Their
Application, Volume III, Little, Brown and Company, Boston, 1978, p
75-76.
[21] Neale A and
Goyder D, The Antitrust Laws of the United States of America: A Study
of Competition Enforced by Law, 3rd edition, Cambridge
University Press, Cambridge 1980, p 93.
[22] See the
comments of Pincus J in General Newspapers Pty Limited v Telstra
Corporation (1993) ATPR 41-274 at 48,819.
[23] See the
comments of Pincus J in General Newspapers Pty Limited v Telstra
Corporation (1993) ATPR 41-274 at 48,819.
[26] See K McMahon
"Predatory Pricing under Section 46 of the Trade Practices Act and the
decision in Eastern Express v General Newspapers - Part II (1993) 1 Trade
Practices Law Journal 130; R Steinwall “The Use of cost Based
Tests and the Tests of Recruitment by Australian Courts in Predatory Pricing
Cases: Some Further Insights from the Recent Federal Court Decision in Boral
Limited (1999) 7(2) Competition and Consumer Law Journal 140;V
Nagarajan, “The Regulation of Predatory Pricing within s46 of the Trade
Practices Act 1974” (1990) 18 Australian Business Law Review 293
at 308-312.
[27] R Posner Antitrust
Law: An Economic Perspective, University of Chicago Press, Chicago, 1976,
p190.
[29] R Bork, The
Anti Trust Paradox: A Policy at War with Itself, Basic Books, New York 1978
at p 145,approved in Matsushita Electric Co v Zenith Radio Corp 106
S Ct 1348 (1986) at 1357.
No comments:
Post a Comment