Competition and Consumer Act issues affecting franchises Josh Simons Partner, Thomson Geer jsimons@tglaw.com.au

The onslaught continues… 2015 : New Franchising Code amendments commence 2016 : Unfair Contract Term regulation of small business contracts commences 2017 : Implementation of Harper Review recommendations • Misuse of market power • Cartel conduct • Third Line Forcing • Resale Price Maintenance 2017 : Implementation of Productivity Commission Intellectual Property recommendations?

Harper Exposure Draft Follows extensive period of review: • “Root and branch review” of competition law was Federal Government’s 2013 election commitment • Review commenced in March 2014 • Draft report released September 2014 • Final report released March 2015 • Government response released November 2015 (and March 2016 re Misuse of Market Power) • Exposure draft Bill released September 2016 • Legislation to be introduced to Parliament by November 2016, for commencement mid-2017

Misuse of market power The current prohibition: A corporation that has a substantial degree of power in a market shall not take advantage of that power in that or any other market for the purpose of:       (a)  eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;       (b)  preventing the entry of a person into that or any other market; or       (c)  deterring or preventing a person from engaging in competitive conduct in that or any other market. The proposed new prohibition: A corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in that or any other market.

Misuse of market power Implications of the proposed new provision: • Both purpose and effect will now be relevant • No longer necessary to “take advantage” of market power • No longer prohibited to take action for the purpose of harming a competitor (if no SLC) • Essentially imposes a higher standard of conduct on firms with market power Key issues for the franchise sector: • Is a franchise system a “market”? • Will the new s.46 provide greater protection to franchisees than s.21 ACL unconscionable conduct?

Cartel conduct This is “part one” of proposed changes to the cartel conduct provisions – simplification to follow. Joint venture exemption expanded: • Current exemption: JV contracts for the supply of goods or services • New exemption: JV contracts, arrangements or understandings for the production, supply or acquisition of goods or services. Implications for the franchise sector of the expanded JV exemption: • May provide more certainty than the collective acquisitions exemption

Cartel conduct Vertical arrangements exemption expanded: • Current exemption: anti-overlap exemption for conduct falling within s.47 (exclusive dealing) • New exemption: broad exemption for provisions that relate to the acquisition or supply of goods or services by a party. Implications for the franchise sector of the vertical arrangements exemption: • May exempt dual distribution models, where a supplier provides services both directly to the public and through intermediaries (e.g. Flight Centre) • May exempt resellers from requiring suppliers not to discount prices (e.g. Expedia, Booking.com)

Third Line Forcing • Per se exemption will FINALLY be gone • Third line forcing (like all exclusive dealing) only illegal if it has the purpose, effect or likely effect of substantially lessening competition

Resale Price Maintenance Resale price maintenance prohibition unchanged RPM prohibits a supplier of goods from attempting to prevent a second person from re-selling those goods at below a specified price. A “mere persuasion” not to discount may be sufficient to infringe. BUT currently only exception is where authorised (expensive, time consuming and impractical) New 60 day notification mechanism to be introduced, similar to current third line forcing process

Productivity Commission Intellectual Property Arrangements Currently, certain intellectual property arrangements are exempt from CCA Part IV (other than s46): • Licensing or assignment of a patent, registered design, copyright or circuit layout rights • Any provision of a trade mark licence which relates to the kinds, qualities or standards of goods bearing the mark that may be produced or supplied. Productivity Commission draft report recommends removal of the section. Final report due to be released by mid-October 2016.