ACCC & AER annual report 2016-17

Analysis of performance: Authorisations and notifications

Deliverable 1.3: Make decisions on authorisation, notification and certification trade mark applications in the public interest

Authorisation applications

The Act primarily aims to prevent conduct that damages or is likely to damage competition. However, if markets are not working efficiently and are failing to maximise the welfare of Australians, some restrictions on competition may be allowed in the public interest. Authorisation provides businesses with protection from legal action to engage in potentially anti-competitive arrangements.

The ACCC can, upon application, grant an authorisation that imposes restrictions on competition where the likely public benefit outweighs any likely public detriment.

In assessing an authorisation application to determine the likely public benefit and detriment, the ACCC consults with the public (including contacting many businesses that may have an interest in the matter) and publishes submissions on a public register, unless confidentiality is requested.

After considering submissions, we issue a draft decision, which the applicant and interested parties can discuss with us in a conference. We then reconsider the application in light of any further submissions and release a final decision.

During 2016–17, we issued 27 final authorisation decisions, excluding minor variations, for arrangements involving a wide range of industries. Among them were aviation, financial services, agriculture, energy, waste services, transport and retailing.

Applicants sought authorisation for conduct such as collective bargaining, coordination agreements, joint tender or buying processes, industry codes and other price or fee agreements.

Example of public benefits not outweighing anti-competitive detriments: collective negotiation by banks

On 31 March 2017 the ACCC issued a determination denying authorisation to Bendigo and Adelaide Bank, Commonwealth Bank, NAB and Westpac (the applicants), who sought authorisation on behalf of themselves and other card issuers to collectively negotiate with Apple on two issues:

1. to obtain access to Apple iPhone’s embedded near-field communication (NFC) controller so that they could provide their own digital wallet apps using the NFC controller in Apple devices without relying on Apple Pay for mobile payment processing

2. to allow their digital wallet apps to be distributed from Apple’s App Store without unreasonable prohibitions, unreasonable terms, or unreasonable delays from Apple.

The applicants also sought authorisation to enter into a limited and voluntary collective boycott in relation to Apple Pay during the collective negotiations.

Digital wallets are apps for mobile devices that perform some of the functions of a physical wallet, such as storing payment cards, processing mobile payments and, in some cases, storing other cards such as loyalty cards. The applicants could already offer digital wallets on iPhones, but their digital wallets could not bypass Apple Pay to directly access the NFC controller to make mobile payments. As a result, the applicants’ digital wallet apps were limited to making mobile payments either via Apple Pay or by using external NFC hardware.

We considered that, if the proposed collective negotiations were successful, they would be likely to result in increased competition in mobile payment processing, a slight increase in competition in digital wallet apps, and reduced information asymmetry. On balance, however, we were not satisfied that these public benefits were likely to outweigh the anti-competitive detriment resulting from lessening of competition between payment cards and distortion of competition in the markets of mobile operating systems and mobile payment devices.

In particular, successful collective negotiations on NFC access would affect Apple’s strategy for mobile payments and mobile operating systems more generally, which would also affect how Apple competes with Google. This could artificially alter the development of these dynamic high-technology markets, which are currently undergoing rapid innovation and change. In addition, we noted that multi-issuer digital wallets such as Apple Pay have the potential to increase competition between the issuers by making it easier for consumers to switch between cards at checkout and by limiting any additional lock-in effect of bank-specific digital wallet apps.

Example of anti-competitive detriments: agreement on insurance sales commissions

On 9 March 2017, the ACCC denied authorisation to Aioi Nissay Dowa Insurance Company Australia Pty Ltd and 15 other insurance companies to agree to a cap of 20 per cent on commissions paid to car dealers who offer add-on insurance products when they sell a motor vehicle.

These insurance products may be connected to finance associated with the motor vehicle, such as consumer credit insurance, gap insurance, walk-away insurance and trauma insurance. Alternatively, they may relate to the vehicle itself, such as comprehensive insurance, extended warranty insurance and tyre-and-rim insurance.

The insurers’ proposal followed a review by ASIC of sales of add-on insurance through motor vehicle dealerships. ASIC found that consumers are being sold expensive, poor-value products—products that give them very little to no benefit—in a sales environment with pressure selling, very high commissions and conflicts of interest.

We were not satisfied that the insurers’ proposal would address the concerns identified by ASIC. Specifically, a commission cap was unlikely to:

  • remove incentives to sell poor-value add-on insurance policies
  • reduce the overall price paid by consumers for add-on insurance policies
  • improve the quality of add-on insurance policies
  • remove the risk of inappropriate sales practices in the car dealership channel
  • ensure that consumers have access to adequate information to make an informed choice at the time of purchase.

We also considered that a collective agreement between insurers to cap the commissions that they pay to car dealerships would primarily benefit insurers at the expense of car dealerships, and provide minimal, if any, benefit to consumers.

We considered that public detriments were likely to arise from the conduct, such as a reduction in competition between insurers, and delayed implementation of effective reforms that properly address the market failures resulting in the consumer protection issues identified by ASIC.

Exclusive dealing notifications

Notification is an alternative to authorisation for certain arrangements such as exclusive dealing. Like authorisation, the notification process provides protection from legal action under the Act if the conduct is in the public interest. However, the notification process is more common than authorisation for exclusive dealing conduct because it provides automatic legal protection from the lodgment date, or after 14 days in the case of third line forcing. The notification remains in place unless we revoke it. At any time, we can review the public benefit and detriment from the notified conduct to assess whether it should continue.

We assessed 536 exclusive dealing notifications, involving 407 separate matters, in 2016–17—18 per cent fewer than in the previous year.

Collective bargaining arrangements

In 2016–17, we issued 13 determinations authorising collective bargaining arrangements and allowed notifications involving one collective bargaining arrangement. The collective bargaining arrangements we considered during the year included sugar cane supply, furniture retailing, digital wallets and concrete carting.

Collective bargaining is often used by small businesses, including farmers, as a means of improving their position in negotiations with their larger suppliers or customers. Small businesses can seek legal protection from the ACCC to engage in collective bargaining by lodging a notification or by applying for authorisation.

Australian Competition Tribunal

Merger parties may seek legal protection from court action under s. 50 of the Act by applying to the Australian Competition Tribunal (the Tribunal) for authorisation of a merger. The Tribunal may grant authorisation if it is satisfied that the proposed merger is likely to result in such a benefit to the public that the merger should be allowed to occur.

An applicant for authorisation, or an interested party with sufficient interest, who is dissatisfied with an ACCC determination of a non-merger proposal or an ACCC decision to give a notice revoking a notification may ask the Tribunal to review the determination.

We have a role in assisting the Tribunal in its assessment of merger authorisations and in its review of our decisions on non-merger authorisations and revocation of notifications.

Tabcorp Holdings Limited

On 13 March 2017 Tabcorp Holdings Limited (Tabcorp) applied to the Australian Competition Tribunal (the Tribunal) for merger authorisation to acquire all of the shares in Tatts Group Limited (Tatts).

On 22 June 2017 the Tribunal made a determination granting Tabcorp authorisation to acquire shares in Tatts subject to the condition that Tabcorp give the ACCC an undertaking pursuant to s. 87B of the Act in the same form as the undertaking filed with the Tribunal dated 29 May 2017.

The ACCC applied to the Federal Court on 10 July 2017 for judicial review of the Tribunal’s determination granting authorisation for Tabcorp’s proposed acquisition of Tatts. The application is seeking clarification on three points of law which the ACCC considers are central to the Tribunal’s assessment of the proposed acquisition.

Other work assessing the public interest

The Trade Marks Act requires the ACCC to assess certification trade marks and rules before they can be registered by IP Australia. A certification trade mark (CTM) is used by businesses to indicate to consumers that a product or service has been certified as having particular attributes or being produced according to particular standards. Our role is important, as we ensure that competition and public interest issues are appropriately assessed. In particular, we consider the effectiveness of CTM rules in ensuring that the specified standards are met; that the rules do not unfairly exclude those that meet the requirements to use the mark; and that the certification bodies are competent to decide whether the requirements are and continue to be met. During 2016–17 the ACCC finalised 37 assessments of CTM applications.

Example of certification trade mark used to indicate the origin of products: prosecco wine

On 16 May 2017 the ACCC issued a final assessment approving the registration of a CTM comprising the words ‘CONEGLIANO VALDOBBIADENE—PROSECCO’. The mark is owned by Consorzio Tutela del Vino Conegliano Valdobbiadene Prosecco (the consortium) and is used to certify that the wine originates from the Conegliano Valdobbiadene area of Italy.

The term ‘prosecco’ has been used, and continues to be used, by Australian winemakers as the name of a variety of grape. In 2013 the Registrar of Trade Marks relied on this fact to uphold the Winemakers Federation of Australia’s objection to the European Commission’s application to register ‘Prosecco’ as a geographical indication in Australia.

Given the history around the use of ‘prosecco’ in Australia, the ACCC consulted with industry and government on the proposed CTM rules.

Registration of this CTM does not prevent Australian winemakers who use the prosecco grape variety from labelling their wine as prosecco. Rather, the CTM prevents use of the term ‘CONEGLIANO VALDOBBIADENE—PROSECCO’ in full without approval under the CTM rules.